RBI helped rein in inflation: FM

Cites US slump, Euro zone crisis for spiralling of commodity prices

“The unfolding euro zone crisis and slowdown in US could be one of the reasons for India’s growth slowing, but economic fundamentals are strong…The government is keeping a close watch on the situation,” Finance Minister Pranab Mukherjee told the Rajya Sabha in a written reply.

India’s overall economic growth slowed to 7.7 per cent in the April-June quarter against 8.8 per cent in the same quarter last year. Economic experts have blamed persistent inflation, repeated monetary tightening, together with deceleration in of industrial production as the factors responsible for slower growth in the first quarter. They said the global economic environment, particularly the lingering euro zone crisis, has added uncertainties.

Monetary action
The government, however, said that it was the monetary action by the RBI, which has have helped contain inflation and anchor inflationary expectations, although both remain at an elevated level.

“In the absence of increase in Repo Rate by RBI, inflation would have been much higher and credit growth would have expanded much faster, thereby fuelling inflation,” Minister of State for Finance Namo Narain Meena said. The government’s defence for RBI has come at a time when the Central bank has almost been isolated in its fight against inflation, which hovered precariously close to 10 per cent, one of  the highest among major economies in the world.

The RBI, which has raised key short term rates as many as 13 times in the past two years, has been facing stiff opposition from many quarters for its hawkish stance.

The India Inc. has criticized the rate hike saying it is unlikely to tame rising inflation and could instead lead to further slowdown in investments and industrial growth. Some of the policymakers too have expressed their reservation towards further tightening of rates when the economy is facing global headwinds.