Tight money policy to continue, says RBI chief Subbarao

01 Aug 2013

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Reserve Bank of India governor Duvvuri Subbarao said the recent liquidity-tightening measures announced by the RBI would not hurt growth, although there might be pain in the short term.

Speaking at a function in Chennai, Subbarao further said the country's consumer price inflation is still high while growth has moderated.

His comments came amid reports that the RBI today intervened in the foreign exchange market to shore up the rupee.

Subbarao said that the central bank's measures to curb currency volatility would be maintained until the rupee stabilises. Having a stable exchange rate is important for growth to take off, he added.

The RBI last month further lowered the limit for borrowing by banks under the daily liquidity adjustment facility (LAF) and increased the cash reserve ratio requirements in an effort to support the sliding rupee.

"These measures will continue until the volatility in the exchange rate is curbed and we are as anxious as everyone else that that is sooner (rather) than later," Subbarao said.

India's annual consumer price inflation rose again in June to 9.87 per cent after moderating for three straight months.

Subbarao, whose term as RBI chief ends early next month, also spelled out the challenges facing Asia's third-largest economy "Our growth has significantly moderated. Inflation as measured by the wholesale price index has moderated but retail inflation as measured by CPI (consumer price index) is still high, close to double digits. The balance of payments is under stress, our investments have decelerated," he said.

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