The Telegraph
Since 1st March, 1999
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PC seal on price busters

Mumbai, April 11: Finance minister P. Chidambaram today defended the Reserve Bank’s monetary tightening measures to contain inflation that is surging at over 6.4 per cent and debunked the notion that this would scupper economic growth.

“The plan is to moderate inflation and, at the same time, ensure that economic growth is not affected,” Chidambaram told reporters after addressing the 32nd annual conference of the International Organisation of Securities Commission (IOSCO).

He said credit growth in some sectors remained high and needed to be moderated. Asked whether he felt the economy was overheating — a concern that the central bank has flagged since October last year — Chidambaram said, “These are all value judgements. I don’t wish to use such words. All I know is that credit growth is very high and the RBI is right in saying credit growth should moderate.”

Corporate mavens fear that the central bank may have slammed the brakes too hard and this could trammel GDP growth, which has grown at an average rate of 8.6 per cent during the past three years.

The RBI has raised the repo rate — a key short-term interest rate — five times this financial year and the cash reserve ratio (CRR) three times as it struggled to tame inflation. The CRR is a device that the central bank uses to suck excess funds out of the financial system.

Pointing out that the objective was to moderate inflation without affecting growth, Chidambaram said the RBI would bear in mind the need to stimulate growth. The finance minister, however, refused to speculate on how long it would take to bring inflation down to moderate levels.

He said the authorities were focussing on three sets of measures on monetary, fiscal and supply sides to rein in inflation. Earlier, addressing global market regulators and key participants from the equity markets at the IOSCO meet, Chidambaram said central banks across the world were adopting measures to contain inflation.

“Inflation expectations loom large in most parts of the world. Therefore, many central banks have responded pro-actively to tighten liquidity so that inflation is held in check,” he added. Voicing concern over the uncertainties on global interest and exchange rates, Chidambaram said they posed a potential threat to the financial stability of emerging economies. He said capital markets faced many challenges and every country should be prepared to meet the challenges of globalisation.

“Inflow and outflow of capital would continue to pose difficult problems. We have to live with some degree of volatility in the equity, forex and debt markets irrespective of the level of capital account convertibility,” he said.

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