A fortnight ahead of the next monetary policy review, RBI governor Raghuram Rajan said on Thursday the “best tool” available with the central bank to control price rise is interest rate.
“Our best tool to control inflation is interest rate,” he said, adding the government too has tools like increasing agricultural production and improving supply.
“Both need to work together and will work together. We were expecting some increase in the CPI number because of the seasonal effects from vegetable prices, but it came more than anticipated by the consensus forecast. We will study them in detail. What it suggest is that inflation is high as far as food prices go,” he added.
Rajan was talking to reporters after the RBI’s board meeting. He, however, said the core inflation has been coming down but though “very very gently”.
Retail or consumer price index (CPI) inflation rose to three-month high of 8.59% in April. Rajan further said the RBI is a technocratic organisation and works with the government.
Contingency plan in place to face volatility
Rajan said RBI, Sebi and the finance ministry have drawn up a contingency plan to deal with any excessive market volatility when the election results are declared on Friday.
"We have assured the board that we are in discussions with the finance ministry and Sebi. We have placed prudential contingency plans to infuse liquidity, if needed," Rajan told reporters after the meeting