July 29: Defending the baby steps taken by the Reserve Bank to contain the high headline inflation, the chief economic advisor, Mr Kaushik Basu, on Friday said more aggressive steps could have adversely affected growth and jobs. “We don’t want to jeopardise the employment situation in the country by putting a brake on inflation,” Mr Basu said.
On July 27, the RBI had raised its overnight lending (repo) and borrowing (reverse repo) rates by 25 basis points and 50 basis points to 5.75 per cent and 4.50 per cent, respectively, primarily with a view to curb high inflation. “If you see the steps that RBI has taken from January up to now, they are a good, aggressive set of measures phased out very carefully,” Mr Basu said on the RBI moves to curb inflation.
Early on July, RBI had hiked these short-term rates by 25 basis points each as inflation remained above 10 per cent for the fifth month in a row. Since January, the central bank has raised its rates four times this year.
“RBI has taken several small steps towards correction and it is a judicious way to go. Our growth is really buoyant, but is still in a recovery mode from the downturn a year ago and we don’t want to destroy that,” Mr Basu said.
The chief economic advisor noted that by not jacking up the cash reserve ratio but raising the policy rates and narrowing the corridor are very sophisticated moves to gently bring inflation down.