Reserve Bank of India governor Raghuram Rajan said on Monday that the challenge of containing inflation is limiting the central bank's ability to boost economic growth; and urged the government to continue with fiscal consolidation.
The comments were included in the foreword of the central bank's financial stability report published, which comes after the RBI surprised investors by keeping interest rates unchanged this month after raising them by a total of 50 basis points in September and in October.
The report also reiterated the RBI's previously stated concerns about the level of bad assets in the banking sector, noting a corporate "failure" could trigger contagion in the interlinked banking system.
"The outlook for the economy has improved, with export growth regaining momentum, but growth is still weak," Rajan wrote.
"The challenges of containing inflationary pressures limit what monetary policy can do."
The RBI report also named the "fall in domestic savings and relatively high fiscal deficit" as other key concerns for the Indian economy.
Rajan urged the government to continue to push through policy reforms and fiscal consolidation, while noting the prospect of a divided verdict in general elections due by May was creating investor uncertainty.
"Policy certainty is something investors look for in the current environment. A stable new government would be positive for the economy," he added (See: Hung parliament spells trouble for economy, says RBI chief)