Govt Must Not Push RBI to Reverse Gear

Published: 15th October 2014 06:00 AM  |   Last Updated: 14th October 2014 10:53 PM   |  A+A-

Driven by softening vegetable prices, India’s wholesale price inflation decelerated to 2.38 per cent in September from 3.74 per cent a month ago, data released on Tuesday showed. The news comes a day after retail price inflation was shown as decelerating to its lowest level since the series was launched in January 2012, at 6.46 per cent in September, compared with a downward revised 7.73 per cent a month ago. The continuing decline in crude oil prices may cause a further fall in wholesale as well as retail inflation.

This has led to increased clamour from industry that the time for the Reserve Bank of India (RBI) to cut interest rates to revive sagging growth has come. According to Confederation of Indian Industries director-general Chandrajit Banerjee, “The drop in the inflation would also help dampen inflationary expectations in the future and signal the onset of a low inflation cycle. This would provide space to the RBI to review its cautious stance on interest rates.”  But, RBI governor Raghuram Rajan has been rightly pursuing a hawkish monetary policy stance to keep inflation under check. The central bank has not reduced rates in four consecutive policies despite pressure from industry and the finance ministry to cut rates to boost growth.

The government must not pressurise the RBI into any hasty decision to reverse the gear. As Rajan himself pointed out in his address to the Institute of International Finance in Washington on Saturday, India’s economic recovery is still uneven. The International Monetary Fund last week said that with recent monetary tightening, disinflation may continue in India, but inflation overall will remain high at 7.8 per cent in 2014, declining slightly to 7.5 per cent in 2015. The monetary normalisation in India should, therefore, proceed gradually, given the high level of inflation in the country. India first needs to “fix the plumbing” to kick-start stalled projects and correct problems in coal and gas sectors to accelerate recovery and get the economy back on track.


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on are those of the comment writers alone. They do not represent the views or opinions of or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp