labels: economy - general
India to fight inflation without hurting growthnews
12 April 2007

Finance minister P Chidambaram today said India wanted to moderate the rapidly growing demand for loans to bring down inflation but without hurting economic growth.

He told reporters that talks of the economy overheating were all value judgments. "I don't wish to use such words. All I know is that credit growth is very high and the Reserve Bank of India (RBI) is right in saying credit growth should moderate."

Bank loans have been growing 30 per cent annually, higher than the monetary authority's projection of 20 percent, driving up inflation by nearly a full percentage point above RBI's and the government's projection of between 5 and 5.5 per cent.

Since October 2006, the RBI has tightened policy aggressively in leading to concerns over its monetary stance slowing economic growth. It has raised the main lending rate five times in the second half of of the financial year and increased the proportion of funds that banks must deposit with the central bank three times to drain liquidity from the system.

In a report the Asian development Bank said these tough measures could slow economic growth to 8 per cent in 2007-08 from an estimated 9.2 per cent in 2006-07 - the highest growth rate in 18 years.

Chidambaram said, "The goal is to moderate inflation without affecting growth, it is a balancing act... RBI will keep in mind the need to continue to stimulate growth."

Rejecting criticism that RBI`s frequent rate hikes may stunt growth, the finance minister said central banks the world over resorted to monetary measures to contain inflation.

"Inflation expectations loom large in most parts of the world. Therefore, many central banks have responded pro-actively to tighten liquidity so that inflation is held in check," he told a meeting of global stock market regulators in New Delhi.

Chidambaram's defence of the current policy follows mounting criticism that RBI`s move to curb money supply would hurt economic growth (See: Get ready for a recession), especially in sectors like housing and auto.

 search domain-b
India to fight inflation without hurting growth