High inflation wont allow low interest rates RBI Governor

By: admin
Updated: 05 Oct 2012 04:58 AM

Reserve Bank of India (RBI) Governor D Subbarao indicated that
interest rates will come down only when inflation will be reined in. He
tried to put ball in government's court and said that the government needs
to clear that how FDI and hike in diesel prices will be used to control

In ABP News and RBI's programme 'Town Hall', Subbarao said, "To stimulate
growth you need low interest rates but to control inflation you need to
keep interest rates firm. So, you cannot have two interest rates. We have
to draw the balance between stimulating growth and controlling inflation."

Subbarao also added that the variables available to them are the policy
repo rate and CRR. "The policy repo rate controls the price of money while
the CRR controls both the price of money and the volume of money and we
need to use both the variables appropriately in our judgement to draw the
right balance between growth and inflation."

Subbarao said that both the government and the RBI must have a "shared
understanding" of the growth and inflation situation.

"Our goal is that the inflation will come down and will remain steady.
RBI's goal is to bring down inflation and to accelerate growth and that is
what we try to achieve," Subbarao said.

Subbarao's statement indicated that if the inflation rate will be more
than last month's 7.55 per cent on October 15 than the RBI will be forced
not to cut interest rates on October 30.

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