Mumbai, Jan 17 (PTI) It is a challenge for the ReserveBank to meet demands of economic growth and rein in surginginflationary pressures, Governor D Subbarao said today hintingthat it will be a tight-rope walk for the central bank onJanuary 25 when it announces its quarterly policy review.
"Though we recovered faster from the (global) crisis,inflation also caught up with us sooner than others. For theReserve Bank, the challenge is to calibrate monetary policytaking into account the demands of inflation management andthe demand of supportive recovery," Subbarao said.
"A lot of other countries are still flirting withdeflation... and are still concerned that they might havedeflation. On the other hand, we are having a surginginflation," he told students of the Indira Gandhi Institute ofDevelopment Research.
His comments come amid wide anticipation that the centralbank in its third quarter monetary policy review on January 25will raise the key policy rates by at least 25 basis points inthe wake of soaring inflation.
High food inflation has been a major concern for thegovernment. Rising food prices have pushed up inflation 8.43per cent in December last year.
Food inflation stood at a high level of 16.91 per cent inthe first week of January, after touching a 18.32 per cent inthe last week of December.
"When I meet other central bankers they tell me: ''whydon''t you give us a bit of your inflation so that our growthwill be faster. That''s how desperately they want someinflation and how desperate we are to control our owninflation," the Governor said.
The country is desperately fighting a surging inflationand the monetary policy needs to be calibrated to manageinflation and support growth, he said, and admitted "there isno template for monetary policy or inflation management."
Home Minister P Chidambaram, himself a former financeminister, had recently wondered if the government had all thenecessary tools at its disposal to fight inflation.
Finance Minister Pranab Mukherjee had last week said theCentre alone cannot fight inflation, and called for the activesupport of the states.
The RBI had so far upped key policy rates (short termlending and borrowing rates) six consecutive times to 6.25 percent and 5.25 per cent, respectively, while exiting softmonetary stance it adopted to help overcome the globalfinancial meltdown.
The central bank is in an unenviable position as it hasto, rein in soaring inflation, driven mostly by food articles,and at the same time support industrial and commercial growthof the economy, which after gathering unexpected speed hasbeen loosing steam of late.
Industrial growth has been faltering. The Novemberfactory production figure at 2.7 per cent was the lowest inthe past 18 months.
The economy grew 8.9 per cent in the first six monthsof the fiscal.