RBI defends its move for status quo, holds high inflation the reason

Under attack for not reducing interest rates, RBI Governor D Subbarao held that inflation at current levels is unacceptable and monetary-tightening is need for the hour in order to ascertain sustainable growth. As per Mr. Subbarao, the policy rate hikes have assisted in assuaging inflation.

  • The move from RBI actually came against the expectations of the industry, which hoped for rate cuts.

The WPI based inflation climbed to 7.55% in May 2012, while GDP growth last fiscal plummeted to a 9-year low of 6.5%. As per the RBI, the country is not in a 1991-like crisis situation and the economy is still in credible state. It is also asserted that the expected advantage of decline in crude oil and other commodity prices has been neutralized by the steep decline of the rupee.

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