RBI’s cash-tightening measures to stay until Forex market stabilizes: Subbarao

August 4, 2013

RBI Governor D Subbarao has defended the central bank’s stance on choosing inflation over growth, saying that when the “inflation threshold limit is crossed, it becomes difficult to make a trade-off.”
He explained that there is a threshold level of inflation. If the inflation is below that level, then RBI can make that trade-off. But if it isn’t, then it can’t afford to do the same as inflation hurts the poor section of the country the most and for this reason some sacrifice of growth is inevitable to curb inflation. He said that this sacrifice in growth is only for the short-term. In the long-term, curbing inflation will be supportive of growth.
He refused to give any time-frame of the current cash-tightening measures taken by the central bank and indicated that these measures will stay until volatility in the foreign exchange market is curbed.