'RBI's Dominant Objective is Price Stability': C Rangarajan Says Inflation, Economic Growth Should be Considered Together
The former RBI governor C Rangarajan said that the Monetary POlicy committee should consider price stability in the context of what is happening to economic growth.
File photo of former RBI Governor C Rangarajan.
Former RBI governor C Rangarajan, who is considered the doyen of central banking, on Tuesday said that a strong distinction should not be made between inflation and economic growth and warned that RBI’s sole focus shouldn’t only be on price stability.
“What is happening now is the dominant objective of the RBI is price stability. But that has to be done in the context of what is happening to economic growth,” he said in an interview with CNBC-TV 18.
Rangarajan’s comments come days after the central bank cut interest rates for the fifth time in a row in an attempt to give a renewed push to a slowing economy.
“Just look at the minutes of the monetary policy committee. There is a great of discussion about what is going to happen to economic growth and what are the factors that might actually have an impact on price levels. Therefore, I think we should not draw too strong a distinction between the two," Rangarajan said.
He also ruminated that the repo rate had come to be an important policy instrument since post-liberation in the early 1990s when the Cash Reserve Ratio was slashed and the administered structure of interest rate was abandoned.
Since 1993, he said, the relationship between foreign exchange market and domestic money market became intense “and as a consequence the monetary policy issues were also related to what is happening to the exchange rate and what is happening in the rest of the world”.
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