Ahead of the mid-quarter review of the monetary policy on September 17, senior-most Reserve Bank deputy governor Keshab Chandra Chakrabarty today said their top priority is to keep inflation under control.
The comment assumes importance as after falling a bit in the previous month, inflation rose to 7.55 percent in August, driven by higher prices of vegetables like potatoes, wheat and pulses which rose due to poor monsoons.
The spike in the price index was also driven by a rise in the prices of manufactured items, further whittling down the efforts of the monetary authority to batten down inflation.
Wholesale price index was 6.87 percent in July. However, in August last year it was 9.78 percent.
"Controlling inflation is the top most priority of the central bank," Chakrabarty told the students of a city college here.
Admitting that the nearly two-year-old rate hikes have had its impact on growth driven by slowing investments, the deputy governor said, "We agree that investment has slowed down due to higher interest rate."
On the third round of quantitative easing (QE3) announced by the US Fed yesterday, he said it will help the American economy, but it will spike commodity prices.
"What the US has done, will help the American economy. But it will have impact on the commodity prices. However, our problem is more internal," he said.
Yesterday, US Federal Reserves chairman Ben Bernake said the central bank will buy USD 40 billion worth government bonds every month to help boost the economy till 2015. He also left the interest rates unchanged at 0.25 percent till then. The move has raised commodity prices across the globe, besides triggering a rally in stock markets.
Taking a dig at the banks for reducing interest rates on their deposits, Chakrabarty said savers must be given higher rates of interest in comparison to inflation.