Subbarao: Busy schedule

Mumbai, Oct. 25 (Agencies): The Reserve Bank of India (RBI) must balance growth and financial fitness with price stability during the global market turmoil, even though it sees inflation easing from double digits by March, its chief Duvvuri Subbarao said.

Subbarao told news agencies on Saturday it was too early to assess how growth would progress in the fiscal year which ends in March as there was too much uncertainty because of the global crisis, but any moderation in growth would be modest.

The RBI left all its key policy rates unchanged at a review on Friday, after cutting its main lending rate (repo) by 1 percentage point to 8 per cent in a surprise move on Monday.

The decision not to ease policy again at the end of the week disappointed India’s bond and stock markets, with shares falling almost 11 per cent as the global market rout pummelled them.

Concerned about rising risks to growth, central banks, including the Federal Reserve, the European Central Bank and the People’s Bank of China, cut their interest rates in a co-ordinated move earlier this month.

India’s money markets seized up early in October as the global cash crunch spread, and Subbarao said Monday’s cut was aimed at financial stability and the RBI was trying to strike a judicious balance between its objectives.

Asked why there was a reluctance to take a pro-growth monetary stance when the central bank’s own projections showed inflation would slow to an annual 7 per cent by March, Subbarao said, “Because as I said we have got to balance growth, financial stability and price stability.”

The rate of inflation rose to 12.91 per cent in August but has eased to 11.07 per cent in early October.

Subbarao said even though inflation was coming down “in mathematical sense”, concerns remained, with oil prices volatile and a weakening rupee adding to inflationary pressure.

Nonetheless the messages from Friday’s policy review were that banks must keep credit flowing and monitor credit quality, and that the central bank would act when needed, he said.