Mumbai: Concerned over surging food prices, the Reserve Bank of India governor D. Subbarao on Wednesday said that controlling inflation continues to be a “dominant” concern.
“...in fact, inflation has been and continues to be our dominant concern,” he said in his welcoming remarks at the L.K. Jha Memorial Lecture in Mumbai. The lecture was delivered by Stanford University professor John Taylor.
Food inflation touched 17.97% during the week ended 6 February, up marginally from 17.94% a week ago, and there are fears that higher food inflation will fuel overall inflation.
Price concern: RBI governor D. Subbarao. Wholesale price inflation at 8.56% has crossed RBI’s projection of 8.5% by March-end. Abhijit Bhatlekar/Mint
Wholesale price inflation crossed RBI’s projection of 8.5% by March-end as food items such as sugar, potatoes and pulses became costlier. It currently stands at 8.56%.
Earlier, Subbarao said in Patna that the central bank would stick to its projection for the rate of price rise in spite of the surge in food price-driven inflation.
Referring to the policy stance adopted by RBI during the crisis, Subbarao said: “Our concern was not so much rescuing a collapsing financial sector (like in the West), but rather arresting the moderation in economic growth. Second, we never had a fear of deflation although WPI inflation was negative for a short period.”
To support a sagging economy, RBI eased its monetary policy stance by way of reducing its key rates several times since October 2008.
The apex bank, however, hiked its cash reserve ratio, the amount banks need to park with RBI, by 0.75% to 5.75% last month to support growth and tackle inflation.
Subbarao said even at the height of the crisis the financial markets continued to function normally, attributing this to the fact that Indian banks and financial institutions did not have a significant exposure to subprime assets.
Subbarao observed that while in advanced economies, the crisis spread from the financial sector to the real sector, the direction was in reverse in emerging markets.