RBI should further tighten policy to contain inflation: Tarapore

MUMBAI: Former Reserve Bank Deputy Governor, S S Tarapore on Tuesday said that the apex bank should further tighten its policy stance to arrest the ballooning inflation, now at 12.14 per cent.

"The current inflation rate of 12 per cent is clearly unacceptable to the Indian polity...such a high rate of inflation has serious economic, political and social repurcussions...policy should aim to squelch the current inflation and inflationary expectations," Tarapore said.

In the absence of a strong monetary policy, the economy would face serious risks in the next 12-24-months, Tarapore said.

India's inflation rose to close to 13 per cent in the recent past on acccount of high international crude oil, commodity and steel prices prompting the RBI to effect several round of hikes in its key rates.

It hiked the cash reserve ratio (CRR) and repo rate to 9 per cent through several rounds of hikes.

Given the current crisis in the financial markets, the Reserve Bank should not lower its signalling interest rate and should return to its inflation-targeted policy path, the former RBI Deputy Governor said.

"There should be no question of any lowering of the RBI signalling interest rate," he said.

The domestic economy should also gear up against possible large capital outflows and the apex bank should be willing to sell in the forex market to obviate the stampede at the exit door.