Inflation management can't be left to RBI alone: FM Nirmala Sitharaman

PTI

New Delhi, September 8

Finance Minister Nirmala Sitharaman on Thursday said inflation management cannot be “singularly” left to the monetary policy as a majority of activities are outside its purview in the current context. Speaking at a seminar organised by economic think-tank Icrier, the Finance Minister said both the fiscal policy and the monetary policy have to work together to contain inflation.

Fiscal, monetary policy have to work together

I am not giving any direction to the RBI but for handling inflation, fiscal and monetary policy have to work togethe — Nirmala Sitharaman, Finance minister

Consumer price index-based inflation or retail inflation is ruling above the Reserve Bank’s comfort level of 6% since January. The central bank, which has been tasked by the government to keep inflation within 2-4% range, has hiked the key policy rate by 140 basis points since May with an aim to check the rate of price rise.

Inflation management cannot be singularly left to monetary policy, which has proved totally ineffective in many countries, she said.

“The RBI will have to synchronise somewhat, maybe not as much synchronised as other western developed countries would do. I am not prescribing anything to the Reserve Bank... “I am not giving any forward direction to the RBI but it is the truth that India’s solution to handling the economy, part of which is handling inflation also is an exercise where the fiscal policy, together with the monetary policy has to work,” she said.

The minister further said there are economies where policy is designed in such a way that the monetary policy and the interest rate management is the one and the only tool to handle inflation, she said.

“I would say India’s inflation management, the word ‘taming inflation’ or the word ‘keeping it within the tolerance limit’, is an exercise of so many different activities and a majority of which is outside the monetary policy in today’s circumstances,” Sitharaman said.

There could have been a time when people would have thought this is sacrilegious for the finance minister of a country to say so, she added. As part of inflation management, she said, India increased the import of crude oil from Russia at discounted prices despite sanctions imposed on Moscow due to the Russia-Ukraine war.

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