Stable exchange rate is important: RBI governor

Chennai, August 1 (IANS) The Reserve Bank of India (RBI) will continue its cash-tightening measures till the volatility in the foreign exchange market is controlled, said its governor Thursday stressing the importance of a stable exchange rate.

"Having a stable exchange rate is important," D. Subbarao said here while delivering the R. Venkataraman endowment lecture at the Madras School of Economics on 'Dilemmas in Central Banking'.

He said the recent cash tightening measures will not impact growth though there might be short-term pain.

The banking regulator said it is important to bring down inflation.

Last month, the RBI lowered the limit for borrowing by banks under the daily liquidity adjustment facility (LAF). The central bank also increased the cash reserve ratio (CRR) attracting criticism that the measures would impact economic growth.

According to Subbarao, the decision to roll-back the measures will be purely based on data on the stability of foreign exchange rates.

He said the high consumer price inflation is a concern for all as it impacts common people.

Subbarao said the consumer price inflation is due to cyclical and distributional problems.

He said some sacrifice in growth has to be there to bring down inflation.

According to him, the dilemma for RBI is the maintenance of a balance between growth and inflation. The three objectives of a monetary policy are to stimulate growth, contain inflation and ensure financial stability, he noted.


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