FM Arun Jaitley backs RBI: Raghuram Rajan to take call on rate rejig

Aug 11 2014, 07:38 IST
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RBI Governor Raghuram Rajan and Finance Minister Arun Jaitley attend the board of directors meeting of the RBI, in New Delhi. (Reuters) RBI Governor Raghuram Rajan and Finance Minister Arun Jaitley attend the board of directors meeting of the RBI, in New Delhi. (Reuters)
SummaryMonetary policy to check retail inflation on target, says RBI.

IN a marked contrast from the adversarial stance adopted by the previous UPA government, Finance Minister Arun Jaitley and Reserve Bank of India (RBI) Governor Raghuram Rajan have agreed on an acceptable path of inflation targeting, with the central bank taking the lead role.

The agreement on Sunday puts behind a frosty relationship that had emerged between the RBI and the Finance Ministry, as witnessed over the past few quarters. Jaitley, after a meeting of the RBI’s central board here on Sunday, clearly indicated that though the policy regime must be tuned to boosting economic growth, the final call on a rate rejig has to be with the RBI.

“I, on the same evening (as the monetary policies of June 3 and August 5) issued a clear statement and I think that’s very clear. This is an issue that the RBI decides and I am sure they factor in various circumstances,” Jaitley told reporters after the meeting.

The RBI has kept key rates unchanged in successive monetary policies as it continues to try to put a lid on runaway inflation. In its third bi-monthly monetary policy on August 5, Rajan had stressed that the RBI must “remain vigilant” on retail inflation and its next goal was to bring inflation down to 6 per cent by January 2016.

At the time, Jaitley had said inflation was moderating and the government was committed to fiscal consolidation and reviving the investment cycle. “Going forward, the RBI should examine the liquidity situation, inflation and growth in setting policy rates,” he had said in his Facebook post.

Retail inflation in June had eased to 7.31 per cent from 8.28 per cent a month ago while wholesale prices rose 5.43 per cent in June. But concerns of a weak monsoon stoking inflationary pressures persist and the larger target of 6 per cent retail inflation by January 2016 is being seen as extremely challenging.

“The Finance Minister indicated that the policy regime is being geared towards attaining higher growth, lower inflation and sustainable external balance in the backdrop of macro-economic challenges faced in the last two years of sub-five per cent growth and high inflation,” said an official statement on Jaitley’s address to the RBI’s central board.

After the meeting, Rajan said the monetary policy that is focussed on containing retail inflation is on target. “We (our policy measures) are contingent on the data coming in,” he told reporters, adding that the RBI

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