Finance minister Pranab Mukherjee on Monday said the Reserve Bank of India's (RBI) move to tighten monetary policy may have a small negative impact on the growth rate of the economy in the short run, but in the medium to long-term it should actually help the Indian economy to do better in terns of growth. The finance minister observed that "there are times when all informed observers have a common view of what the imperatives of monetary policy are. In such times the RBI's decision is easy. Today is not such an easy time."
"The signals from the economy have been mixed. Industrial growth showed a slight slowing down in August, which is the last month for which we have detailed data. Inflation, while less than what it was some months ago, is still not in a zone where we can sit back," he pointed out.
"I respect this decision made in a difficult time. This will create some monetary tightening in the country, without narrowing the liquidity access facility (LAF) corridor," he said.
Mukherjee pointed out that last week there was concern about liquidity shortage, when RBI was injecting a lot of credit through the repo window but "this is a very short-run phenomenon, caused by the huge oversubscription to the IPO by Coal India."
"I am glad that RBI has risen to the challenge and used a very careful combination of policies to complement what the government of India is doing to steer our economy to grow better and harness inflation," he added.
Finance secretary Ashok Chawla said RBI has acted in a pragmatic manner.
Courtesy: Mail Today
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