<p>“Notwithstanding (the) scheduled quarterly and mid- quarterly reviews, we reserve the right to alter our policy stance at any time to respond to the evolving macroeconomic situation,” Subbarao said said at the Convocation function of Sambalpur University.<br /><br />Driving growth<br /><br />The statement assumes significance in the light of double digit food inflation and rising crude oil prices.<br /><br />Subbarao said “we are deeply conscious that inflation is a regressive tax that hurts the poor the most as their earnings are not protected against rising prices.”<br /><br />He admitted “the tension that we need to manage is that economic growth requires that we maintain a low interest rate regime whereas inflation management warrants that we raise interest rates.” As part of managing growth-inflation dynamics in the post-crisis period, RBI has raised policy interest rates seven times since March 2010. Subbarao said, “we are sensitive to the need for supporting growth as economic growth is a necessary condition for poverty reduction.”<br /><br />On capital inflows, Subbarao said, “the liquidity infusion policy of the US Fed, popularly known as quantitative easing (QE), has triggered larger capital flows to emerging market economies (EMEs).”<br /><br />This has in turn put upward pressure on EME exchange rates eroding their export competitiveness and pushing up asset prices. EMEs had to adjust their macroeconomic policies to manage the implications of these flows, he said.</p>
<p>“Notwithstanding (the) scheduled quarterly and mid- quarterly reviews, we reserve the right to alter our policy stance at any time to respond to the evolving macroeconomic situation,” Subbarao said said at the Convocation function of Sambalpur University.<br /><br />Driving growth<br /><br />The statement assumes significance in the light of double digit food inflation and rising crude oil prices.<br /><br />Subbarao said “we are deeply conscious that inflation is a regressive tax that hurts the poor the most as their earnings are not protected against rising prices.”<br /><br />He admitted “the tension that we need to manage is that economic growth requires that we maintain a low interest rate regime whereas inflation management warrants that we raise interest rates.” As part of managing growth-inflation dynamics in the post-crisis period, RBI has raised policy interest rates seven times since March 2010. Subbarao said, “we are sensitive to the need for supporting growth as economic growth is a necessary condition for poverty reduction.”<br /><br />On capital inflows, Subbarao said, “the liquidity infusion policy of the US Fed, popularly known as quantitative easing (QE), has triggered larger capital flows to emerging market economies (EMEs).”<br /><br />This has in turn put upward pressure on EME exchange rates eroding their export competitiveness and pushing up asset prices. EMEs had to adjust their macroeconomic policies to manage the implications of these flows, he said.</p>