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Chidambaram slams defiant RBI on rates

Hours after it refused to follow govt ‘orders’, FM lashes out at RBI for ‘sacrificing’ growth.

Apparently not enthused by the RBI’s cautious stance, Finance Minister P Chidambaram today said that growth is as much a challenge as containing inflation and government would “walk alone” to face the challenge if it comes to that.

“Growth is as much a challenge as inflation. If government has to walk alone to face the challenge of growth, then we will walk alone,” he said in his reaction to the RBI’s second quarter policy review.

Chidambaram was apparently upset over RBI’s decision to leave interest rates unchanged on inflation concerns despite the government unveiling a five-year fiscal consolidation road map ahead of the policy.

Although the RBI has lowered the Cash Reserve Ratio (CRR), the portion of deposit banks have to park with the apex bank, by 0.25 per cent, it did not cut interest rates in view on persistent inflationary pressures.

WPI inflation stood at 7.81 per cent in September, much above the RBI’s comfort level of 4-4.5 per cent.

“Government is doing its best to send the clear message that we are on the path of fiscal consolidation. It is my hope that everyone will read and understand the government commitment to path of fiscal consolidation,” Chidambaram said.

On the policy statement, he quipped: “I have not read the last few paragraphs of the statement but if it holds out hope for the future I look forward to that future”.

He was apparently referring to the RBI’s policy guidance of a likelihood of policy easing in the January-March quarter of the current fiscal.

Chidambaram further said: “Sometimes it is best to speak, sometimes it is best to remain silent. This is the time for silence”.

After FM, Montek rains brickbats on RBI

Terming the decision of RBI to cut CRR a step in the right direction, Planning Commission Deputy Chairman Montek Singh Ahluwalia today said the need to push growth should take precedence over combating inflation.

“I can see that the RBI remains concerned about inflation. I think we need to watch what happens in inflation but probably the need to push the growth at this moment is little higher on agenda than the concern about inflation,” Ahluwalia told reporters here.

Showing concerns over hardening inflation, the Reserve Bank today left the key interest rate unchanged but reduced cash reserve ratio by 0.25 per cent to inject Rs 17,500 crore liquidity into the financial system.

CRR or the portion of deposits banks have to park with the RBI now stands at 4.25 per cent while the repo rate, at which RBI lends to the system, has been retained at 8 per cent.

Ahluwalia said, “It was expected that they (RBI) would move in the direction that would be supportive of revival of growth. I do think that the reduction in the CRR is a step in that direction. Hopefully it would moderate pressure on the interest rates.”

About RBI not doing enough to push growth, he said, “We have to push for growth anyway. Monetary policy is very important aspect of the growth push, but most of what need to be done for growth, has to be done by the government and weare going to do it.”

He is of the view that CRR cut would have stronger impact on interest rate than simply adjusting the repo rate because bank does not lend freely at the repo rate and it does not play the role which FED fund rate do in the US.

On fiscal consolidation road map chalked out by the Finance Minister P Chidambaram, he said, “We are determined to bring the fiscal deficit down.”

On whether monetary policy is in sync with fiscal policy, he said, “…enough has been done to indicate a start in other policies like fiscal consolidation, reforms and moving big projects… the direction that monetary should move is quite clearly to be supportive of that.”

About the lowering of growth projection for this fiscal to 5.8 per cent this fiscal from earlier estimates of 6.5 per cent, he said, “If we do 5.8 per cent GDP growth this fiscal that would actually imply very significant improvement over the results that we have got for the first quarter.”

“I think that the growth in the second quarter would be similar to first quarter. If we do 5.5 in the first six months, can we do better in next half. I think we can.

Therefore 5.8 per cent is not broadly off the mark,” he added.

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First published on: 30-10-2012 at 14:46 IST
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