RBI has had limited success in lowering inflation: R Gopalan

NEW DELHI: The finance ministry today said the Reserve Bank's monetary tightening has had only a limited success in lowering inflation, which is hovering near the double-digit mark by moving up to 13-month high of 9.78 per cent in August.

"In India, the policy stance has had to change from being accommodative to one of aggressively combating inflation. The benchmark short-term policy rate was raised in quick succession from March, 2010," Department of Economic Affairs Secretary R Gopalan said here.

"While this tightening has been able to anchor inflationary expectation up to a point, it has had limited success in lowering inflation rates to acceptable levels," he added.

RBI has raised interest rates 11 times in the last 18 months to tame inflation.

In July, it raised the short-term lending (repo) rate by 50 basis points to 8 per cent and the short-term borrowing (reverse repo) rate by a same margin to 7 per cent to anchor inflationary expectations.

Subsequently, the interest rate under the Marginal Standing Facility, an additional borrowing window, has gone up to 9 per cent from the earlier level of 8.5 per cent.

There is no doubt that there are supply side constraints within the Indian economy, Gopalan said, adding that the issue of development -- particularly in the area of infrastructure and in poverty alleviation, health and education -- remain critical challenges.

"We have been addressing them by investing in infrastructure, agriculture and in the social sector and continuing the structural reforms in the economy," he said.