Past RBI chiefs broadly agree on current policy directions
08 Dec 2009
Reserve Bank of India governor D Subbarao said onthat food price inflation was a supply-side problem, and there was little monetary policy could do to control it. ''What is in fact a bigger threat on the inflation side is not so much consumer price inflation but asset price inflation. That's what central banks should be guarding against,'' Subbarao said.
Speaking at a round-table conference of former and current monetary policy-makers organised by CNBC-TV18, Subbarao said concerns of inflation rearing its head as a result of loose monetary policy were exaggerated. ''There is no evidence yet that asset-price bubbles are being formed. The threat of consumer inflation is muted,'' he said.
The other participants in the conference were former RBI governors Bimal Jalan, Y V Reddy and C Rangarajan, who is also chairman of the prime minister's economic advisory council (EAC).
The panellists seemed to agree on most issues. On capital inflows, Subbarao noted that active capital management should not be ruled out if foreign fund inflows surge. He said no policy option, including Tobin tax, was off the agenda.
''Capital flows are coming on the back of India's potential. When flows are in excess, they show lack of absorbing capacity. In the medium term, the task is to improve the absorptive capacity of economy, but going forward, calibrating reserves roughly corresponding to the current account deficit is the task,'' he said.
Rangarajan added, ''Capital inflows are always welcome. But some restrictions on capital inflows maybe imposed. India can restrain liquidity by raising the cash reserve ratio of banks,'' he said, adding that the nation can raise interest rates at a later stage.
