Low inflation must for meaningful interest rate regime: Patel

RBI Governor Urjit Patel today made a strong case for keeping inflation low on durable basis saying it is "essential prerequisite" for meaningful interest rate structure to increase investments for better growth.

"For us, in India, good policy housekeeping should be the cornerstone. It is easy and quick to fritter away gains regarding macroeconomic stability. But hard and slow to regain them," he said at Vibrant Gujarat Global Summit here.

Observing that RBI has already notified inflation target of 4 percent, Patel said the effort should be to achieve the objective of keeping prices under check on a durable basis, given the progress already made.

"Low and stable inflation is an essential prerequisite for having a meaningful interest rate structure or regime whereby decisions by savers and investors help to achieve maximal allocative efficiency in an economy whose investment rate has to increase for better growth outcomes," he said.

"Concomitantly, we have to continue to press ahead for a more fluid, smooth transmission of monetary policy, as also enhance the formulaic linkage between changes in policy rates and other rates, including administered ones," he emphasised.

Referring to the issue of fiscal deficit, Patel said it is necessary to contain it as combined borrowing of centre and states are among the highest in the G-20 countries. This is also coming in the way of credit rating upgrade by international agency.

Lower fiscal deficit will also help in better management of risk and curb financial volatility which becomes more important in view of adverse external environment, he said.

The RBI Governor also made a case for continuous support towards recapitalisation of public sector banks arguing that "a well capitalised domestic banking system enhances the comfort of the various stakeholders to conduct business in the offshore IFSC as well".

GIFT has been set up by the Gujarat government as India's first International Financial Services Centre (IFSC) that brings together world class infrastructure, connectivity, people and technology on a single platform for businesses across the world.