Conflict between monetary, fiscal policies exaggerated: Rangarajan

August 7th, 2010 - 4:19 pm ICT by IANS  

Hyderabad, Aug 7 (IANS) Economic Advisory Council chairman C. Rangarajan Saturday said the conflicts between fiscal policy and monetary policy were exaggerated but called for coordination between the two.
“I think monetary policy has its own role to play. There has to be some coordination between monetary policy and fiscal policy,” Rangarajan told reporters here.

“At a time like this when inflation is high, monetary policy has an important role to play. I think the conflict between fiscal policy and monetary policy are exaggerated. All that it means is there is a need for coordination between the two policies,” he said.

Opposing the idea of a super regulator for the financial system, he favoured the continuation of the present system of multiple regulators.

“There is no question of a super regulator. We have a system in India of multiple regulators. There is no unified single authority supervising all segments of the financial system. That is in keeping with the way the financial system in our country has developed.”

Rangarajan hoped the availability of food grain as a result of good monsoon would bring down the food prices.

“Our own projection is that as a result of good monsoon, agriculture will grow between four and five percent during this year. This will have a favourable effect upon availability of food grains and this will also dampen inflationary expectations. Both taken together should lead to a decline in food grain prices,” he said.

He did not agree that the Reserve Bank of India (RBI) was being hawkish. “The central bank is doing what is appropriate. We have an inflation level which is uncomfortably high and therefore inflation needs to be addressed. The RBI is taking appropriate action. In fact, the RBI has been following a series of small steps rather than one big step. The RBI policy is moving in the right direction.”

He said the RBI would take a decision on interest rates towards the end of next month. “It all depends on how inflation continues to behave in the next four weeks.”

Rangarajan said economic recovery in the US would be slow but ruled out the possibility of a double dip. “The recovery is not strong. Even the second quarter results that are now available for the US show the growth rate is small. The economy will grow this year between 2.5 and 3 percent,” he said.

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