Controlling inflation is RBI's near-term target

These were remarks as part of oral evidence presented by the RBI governor before the standing committee of finance in Parliament on 6th August.

As far as fuel subsidies are concerned, the RBI governor made it clear that there was indeed a short-term risk of a major inflation spike. At current numbers, 260 bps to the inflation number will cause a significant shock. These RBI calculations must be based primarily on diesel and on LPG among other products.

In response to other sustained questions where the ministry of finance had also deposed before the same committee and directly blamed the RBI for the current economic slowdown. The RBI governor was very forthright. He completely disagreed with the finance ministries position and repeatedly said that as far as the deficit position was concerned, it is the most alarming which needs to be taken control of.

The RBI governor acknowledged that monetary and fiscal policy need to go together, but told the MPs and everybody who now can go check this public report of the standing committee of finance which was released today, that the RBI will continue to target inflation.

After going through the report we feel that, notwithstanding the sub 5% GDP growth number expectations for the number that will come out tomorrow, the RBI at least for the near term will continue to target inflation and not be defocused away from inflation control.

The RBI is certainly not accepting the point that growth moderation should be directly addressed through interest rate cut.