Inflation A Destructive Disease: Rajan

Terming inflation as a ‘destructive disease’, Reserve Bank Governor Raghuram Rajan said there can be no trade off with growth and prices have to be brought down.

inflation-a-destructive-dis“Inflation is a destructive disease. Industrialists complain about high interest rate but we don’t have a choice but to keep interest at high rate because inflation is high at 8 per cent,” Reserve Bank Governor Raghuram Rajan said in the 8th R N Kao Memorial Lecture organised by Research and Analysis Wing in New Delhi. While industrialists want an interest rate of about 5 per cent, a citizen would like the saving interest rate to be 10 per cent. The mismatch between industrialists’ demand and account holders is because of inflation.
“The point is inflation is hitting the growth in the long run. There can be no trade-off. There is need to bring inflation down. Can we get inflation under control and get high growth,” he said. But, Rajan said, the policy makers have to face the problem upfront and not keep postponing facing the problem. “We have to examine the Urjit Patel Committee report (asking RBI to calibrate monetary policy to retail inflation rate and not wholesale inflation as is policy presently). We cant push inflation under the carpet as a central banker. We have to deal with it,” he said.
Earlier too, in December 2013, brushing aside suggestions that the Reserve Bank of India has shifted focus from inflation management to growth, the central bank had said fighting rising prices will continue to be its priority and a call on raising interest rates will be taken after factoring in more data. “. . .nobody should doubt our desire to fight inflation and our belief that interest rates are our main tool that we have. Nobody should doubt that,” RBI Governor Raghuram Rajan had said when asked if the central bank is now more keen to boost growth than to tame inflation.
Rajan had added: “Inflation targeting does not mean that you don’t keep an eye on growth because the level of growth in the economy tells you how much disinflation there is already in the system.”


Leave a Reply

Your email address will not be published. Required fields are marked *