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    Default Centre wants RBI to do more to boost economic growth

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    Prime Minister Manmohan Singh’s remark that the time has come for revisiting “the possibilities and limitations of monetary policy in a globalised and fiscally constrained economy” has been read by many analysts as his disapproval of the RBI’s actions over the last few weeks in severely tightening short-term liquidity and bringing some capital controls which had ended up causing panic selling in the stock markets last Friday.

    However, some of Dr. Singh’s close advisers, past and present, who were present when the PM made the remark, have said that he was speaking in a broader context of globalisation and did not mean that the RBI must “revisit” the way it is presently conducting the monetary policy and managing the volatility in the rupee’s exchange rate. Both Dr. C. Rangarajan, the Chairman of Prime Minister’s Economic Advisory Council (PMEAC) and Y.V. Reddy, the former RBI Governor, who were present at the function, told The Hindu that Dr. Singh was speaking in the context of the historical evolution of monetary policymaking. It had little to do with what the RBI was doing in the current situation.

    The Prime Minister, who released the RBI history volume in the presence of the central bank’s top brass and many former governors, including Bimal Jalan, in his brief address did say there was a need to revisit the possibilities and limitations of monetary policy in a globalised and fiscally constrained economy.

    His intent was perhaps misread because of the recent intellectual disagreement between the Finance Ministry and the RBI in regard to the precise nature of the central bank’s mandate. The RBI has for the past two years been criticised for focusing excessively on inflation at the cost of growth. RBI Governor D. Subbarao made it a point to mention at the book release that it was “inaccurate and unfair” to suggest the RBI was only focused on inflation. He said the RBI was focused on inflation precisely because “it cared for growth”.
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