BI’s best tool to control inflation is interest rate: Rajan

Shimla: A fortnight ahead of the next bi- monthly monetary policy review, Reserve Bank Governor Raghuram Rajan today said the “best tool” available with the central bank to control price rise is interest rate.

“Our best tool to control inflation is interest rate,” he said, adding that the government too has tools like increasing agricultural production and improving supply.

“Both need to work together and will work together. We were expecting some increase in the CPI number because of the seasonal effects from vegetable prices, but it came more than anticipated by the consensus forecast. We will study them in greater detail. What does it suggest is that inflation is high as far as food prices go,” he added.

Rajan was talking to reporters after the Reserve Bank’s board meeting here.

However, he said the core inflation has been coming down but though “very very gently”.

Retail or consumer price index (CPI) inflation rose to three-month high of 8.59 per cent in April.

Rajan further said that the RBI is a technocratic organisation and works with the government.

“We do not use rupee as the way of managing inflation. We are not trying to rely on a particular level of rupee to help us on inflation front,” he said.

He said sometimes it can prove dangerous if “you become overly reliant” on certain level of rupee.

Instead what RBI has focused on is creating conditions inside the country for reduction in inflation.

“Thus far we feel comfortable with the pace of progress. Of course, there are blips up and down…,” the Governor added.

He said people of India wants lower inflation and “we will do whatever we can on inflationary front”.

Rajan exuded confidence that retail inflation would come down to 6 per cent by March, 2016.

“We are very comfortable with the fact that we can achieve what the Urjit Patel committee suggestion of 8 per cent inflation at the end of the. Year and 6 pct at the end of next year.”

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