Inflation also causing slowdown: RBI

RBI Deputy Governor K C Chakrabarty today conceded that monetary policy is partly responsible for not being able to contain inflation and arrest slowdown in growth.

While the interest rates are not the only reason for economic slowdown, inflation is "definitely" one of the reasons for the sluggish growth, Chakrabarty said on the sidelines of an Assocham event here.

"Slowdown in the growth is for a variety of reasons.

Yes, to that extent monetary policy is not able to control the inflation and not effective, it is responsible. We cannot say something wrong happening in the economy, we are not responsible. Collectively, we are all responsible," he said.

Inflation has remained at around 8 per cent for last several months, much above the comfort level of RBI and the government.

When asked whether 7 per cent has become "new normal", he said, it has to be in sync with the global trend which was about 5 per cent in 2011.

The economic growth has also been languishing. For the first quarter of the current fiscal declined to 5.5 per cent.

GDP growth moderated to 9-year low of 6.5 per cent in 2011-12.

Asking banks not to shy away from giving loans to productive sectors, Chakrabarty said "when NPAs are high your risk management system has to be improved, your credit appraisal system has to be improved.

"Because of NPA fear, banks need not stop lending but banks must improve their credit management capability for which there is enough scope, he said, adding, banks need to pay more attention to the credit needs of agriculture, SME and retail," he said.

On the liquidity situation, the RBI Deputy Governor said, there is enough liquidity to take care of the lending activities of the banking system.

"I think liquidity is okay...whatever is the liquidity, that is adequate and comfortable. This is always monitored," he said.

... contd.

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