Mumbai Amid rising inflation, Reserve Bank Governor D Subbarao pitched for greater autonomy for the central bank saying that operational freedom would help it focus better on management of prices.
” Having autonomy frees the central bank from the pressure of responding to short- term developments, deviating from its inflation target and thereby compromising its medium term inflation goals,” Subbarao said at an event in Kerala.
Monetary policy typically acts with a lag, and price stability therefore has to be viewed in a medium term perspective, he added.
Subbarao, last month, had also made a strong case for ” legally- backed formal autonomy” for the RBI. The Reserve Bank, he had said at Central Bank Governance Group in Basel, Switzerland, ” should be given legally- backed, formal autonomy” as a precondition for setting up a Monetary Policy Committee ( MPC) to advise the RBI. The autonomy, according to Subbarao, would help the central bank focus on the medium term objective of lowering inflation without bothering about the short- term compulsions.
Food inflation jumped to a two- month high of 9.01 per cent for the week ended May 28 on the back of costlier fruits, onions and protein- based items. Besides, headline inflation stood at 8.66 per cent in April.
The central bank has raised its key lending ( repo) and borrowing ( reverse repo) rates nine times since March 2010 to rein in the price rise.
Last month, it raised short term lending rate and savings bank rates by 50 basis points to check high inflation.
Having autonomy frees the central bank from the pressure of responding to short- term developmentsalt148 D SUBBARAO RBI Governor
