RBI, finance ministry policies converge in the long term

Kolkata, July 4 (IANS) The Reserve Bank of India Sunday defended its decision to raise key short-term lending and borrowing rates to contain inflation, refuting the argument that the apex bank and the finance ministry are working towards divergent policy goals.

‘Monetary policy authority and the ministry can have different views… for the Reserve Bank of India, inflation is everything, for the ministry growth is everything,’ Deputy Governor K.C. Chakrabarty told reporters on the sidelines of a seminar organised by Assocham on financial inclusion.

But in the long run, two objectives would converge, he said.

‘Even if we take anti-inflationary measures, it does not mean we are against growth…immediately growth may suffer but longer term you will have more sustainable high growth,’ he said.

Chakrabarty was responding to a question why the RBI raised policy rates — repo and reserve repo rates — by 25 basis points each just days ahead of the July 27 policy review. This decision was not in consonance with Finance Minister Pranab Mukherjee’s recent comments that interest rates would not be raised at this juncture.

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