 "High Interest rates not responsible for slow growth")
Interest rates in India are not too high to affect growth, Reserve Bank of India Deputy Governor KC Chakrabarty said on Friday.
He pointed out “infrastructure is not suffering due to lack of finance.” He reiterated that inflation remains the top concern for the central bank, and lowering of interest rates will only happen once inflation cools, but ruled out close intervention in interest rate setting.
“I don’t think that the interest rates are that high, or our policy rates are that high that should significantly affect growth. Growth is being affected for a variety of reasons. We are overplaying the interest rate aspect (for low growth). It may be one of the reasons,” KC Chakrabarty told the Skoch summit here.
Buttressing his point further he said, “I don’t know how much growth sacrifice is due to lack of productivity, lack of efficiency, and how much is it due to inflation.”
At 6.5 percent, the economy slumped to the lowest rate in the past nine years in financial year 2012, and many have blamed the Reserve Bank’s tight monetary policy, coupled with the policy paralysis and lack of strong political will at the Centre as the reasons for the poor show.
Between March 2010 and October 2011, the RBI ramped up its key lending rates by a whopping 375 basis points in a 13 uninterrupted rate hikes cyle to batten down inflation which was near double-digits. But ironically, price index still hovers near 8 percent, while growth has plunged, inviting criticism from many quarters, especially the industry.
However, Chakrabarty admitted that interest rates do affect growth, saying “what we are saying why interest rates affect growth is because inflation affects growth. If inflation comes down, interest rate will also come down. But to say that growth is only going (down) because of high interest rates is a little bit exaggeration and we must look into that.”
“If inflation comes down, definitely monetary policy rate will come down,” he said, adding that “for the Reserve Bank, the first priority is inflation. It is not only growth, we have a multiple indicator approach. But, inflation is definitely the major concerns.”
with inputs from PTI
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