We’ve to make some tradeoffs, says Rajan

Tags: News
Reserve Bank of India governor Raghuram Rajan on Thursday said that the apex bank was extremely uncomfortable with the high rate of consumer price inflation coupled with significantly lower factory production, triggering speculation over a fresh dose of rate hike in the forthcoming money policy review on December 18.

“We are very uncomfortable with the current inflation level, which is at 11.24 per cent. The CPI (consumer price inflation) data has surprised us on the upside and the IIP (index of industrial production) data has surprised us on the downside. Some more data are still to come. We have to look at the details and frame policy accordingly,” Rajan said after a board meeting of the central bank.

Responding to volley of queries on whether the macro-economic data announced on Thursday would have a significant impact on the monetary policy, the RBI governor admitted that the higher inflation rate and lower factory output had been like twin blows to the apex bank.

He said higher food prices had driven India’s annual consumer price inflation to a higher-than-expected 11.24 per cent in November from 10.17 per cent in October, while IIP for October contracted to a negative 1.8 per cent.

“In a situation where you have high inflation and low growth, you have to calibrate policy carefully. There are some tradeoffs that we have to make. We are aware of the weak economy, but have to take inflation into account,” he said. Responding to another query, Rajan said there was an immediate need for states to amend their APMC Act to improve distribution systems and stop formation of cartels in transportation that raises costs.

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