Heat’s on inflation, not growth, says FM, Moderate Credit Growth Is In Economy’s Interest, Emphasises Chidambaram

FINANCE minister P Chidambaram on Wednesday said the government’s ‘goal is to moderate inflation without hurting growth’. Without specifying a time frame within which inflation would be moderated, the minister said “if supply-side improves, along with fiscal and monetary steps, inflation will moderate”. Talking to reporters here on the sidelines of the Iosco summit, Mr Chidambaram said, “RBI will take whatever steps that have to be taken to moderate inflation. Fiscal, monetary and supply-side measures will be taken.” “Inflation will be moderated, have patience,” the minister said, adding that “it is difficult to fix an exact date after which inflation will start moderating”. When asked about overheating in the economy, the minister said the ‘word is too misused’. Credit growth continues to be high in some sectors, he said. “It is in the economy’s larger interest that credit growth is moderated. RBI is taking measures to moderate credit growth,” Mr Chidambaram added. During the last four months, inflation has remained above 6% — touching a high of 6.73% in early February. For the last three consecutive weeks, till March 17, inflation has remained stable at 6.46%. The index fell marginally to 6.39% during the week ended March 24. Inflation rate, which measures the general level of prices of goods and services in the economy, has been high for primary food articles and manufacturing products. The central bank has raised repo rates — the rate at which commercial banks borrow from Reserve Bank of India — several times since November last year to suck out excess liquidity from the market. Apart from raising short-term lending rates, the cash reserve ratio (CRR) or the ratio of the total cash deposits that banks are required to keep with the central bank has also been raised on several occasions. The measures have helped reduce liquidity in the system, but also pushed up interest rates. This, in turn, triggered a selloff in the stock market as the players are worried that their corporate earnings could be hit by a double whammy of higher borrowing costs and lower demand for their products. Apart from the monetary measures, the government has taken steps to address supply-side constraints too. A ban on exports of wheat and pulses along with increased imports of the commodities are among the supply-side measures that have been taken in the last couple of months.

Courtesy: EconomicTimes