Subbarao refuses to give timeframe for liquidity curb rollback

The Reserve Bank of India on Thursday did not give any time-frame for roll-back of liquidity tightening measures and said that they would remain in force till stability is achieved in the foreign exchange market.

"Reserve Bank is as anxious as everyone to roll back the cash tightening steps sooner than later.

"However, the measures taken will be in place until volatility in the foreign exchange market is controlled. I do not want to give any time frame in that," RBI Governor D Subbarao said while delivering the 5th R Venkataraman Endowment Lecture in Chennai.

In order to contain Current Account Deficit and arrest value of declining rupee, the RBI last month had raised the cost of borrowing for banks and reduced availability of funds to curb speculation in the forex market.

RBI did not roll back these measures in its first quarter monetary policy which was unveiled earlier in the week.

Prime Minister Manmohan Singh and Finance Minister P Chidambaram had said that the measures announced by the RBI were not indicative of firming up of interest rates in the long-term and would be withdrawn once stability was achieved in the forex market.

Responding to general criticism that RBI ha not been paying enough attention to growth, Subbarao said inflation cannot be tamed without some sacrifice on the growth front.

"Some sacrifices in growth is inevitable when you are trying to bring down inflation.

"But that sacrifice of growth is only in the short term. . .it is somewhere incorrect to see it as the tension between growth and inflation as hundreds of millions of people are hurt by inflation," he added.

"There has been some criticism in this context that RBI is obsessed in controlling inflation regardless of growth concern. I don't agree with that at all.

“I don't agree with the contention that RBI is obsessed with inflation. RBI believes in price stability, RBI believes in growth, RBI believes in financial stability," Subbarao said.

He further said though wholesale price-based inflation had come down from double digits to below 5 per cent, retail inflation is still close to double digits, mainly because of some cyclical reasons and distribution problems.

The dilemma before the RBI, he said, is to achieve three objectives -- controlling inflation, promoting growth and ensuring financial stability -- at the same time.

It is also the job of the RBI to listen to ‘silent voices of poor people’ who are impacted the most by rise in inflation, particularly of food items.

"It is the responsibility of the Reserve Bank as a public policy to be sensitive to the silent voice of the poor people in the country.

"And that's my most important argument in support of controlling inflation," said Subbarao who will be demitting office in about five weeks.

Replying to questions on rising non-performing assets of the public sector banks, he said, "It is a growing concern. . . we have put in some measures.

“We are going to put in more measures to see that NPA level is controlled across the asset quality of banks. It is very important for credit to continue to (flow) to productive sectors."

On passion of Indians for gold, Subbarao said: "We have to provide people access to formal financial system that offers returns comparable to gold. . .

There was no asset in the country, that provided real return comparable to the return on gold".

Though things would depend upon gold prices, he said, there was a need to give attractive investment options to people to dissuade them from investing in gold.

Image: D Subbarao