PM calls for new thinking on RBI’s monetary policy

Prime Minister Manmohan Singh has called for a fresh thinking on the Reserve Bank of India's (RBI) monetary policy in the context of the globalised economy and suggested a review of measures to deal with the constraints of macro economic framework.

''The time has come when we should revisit some of those areas - the possibilities and limitations of monetary policy in a globalised economy, in a fiscally constrained economy. That is where a fresh thinking is called for," the prime minister said.

But, he said, ''there needs to be a review of macro-economic policy-making, targets and instruments … where I feel fresh thinking is called for, and I sincerely hope that the governors of the future, particularly Dr Raghuram Rajan, will attempt to revisit some of these difficult areas.''

For a policy aimed at carrying out social and economic changes in a country as large, as diverse and as complex as India, he said, a degree of national consensus is needed, at least among professionals.

While the Reserve Bank has served the country with great distinction, he said, the best is yet to come.

The prime minister's remarks point to a hint of new relationship between the government anf the central bank and a possible end to the controversy over the RBI's hawkish policy stance on checking inflation vis-a-vis the government's priority of economic growth.

Manmohan Singh was speaking after releasing the fourth volume of RBI's history, RBI History - Looking Back and Looking Ahead, at a function at his Race Course Road residence.

The prime minister, himself a former governor of the RBI between 1982 and 1985, recalled haw he sought monetary policy inputs from experts when he was chosen to head the central bank.

He said he had then asked noted economist Prof Sukhamoy Chakravarti to head a committee to advise the RBI on the monetary policy measures.

Singh expressed the hope that governor-designate Raghuram Rajan, who was also present, would chart a new course of action in the very difficult period the economy is going through.

Singh also complimented Subbarao saying he had served the country and RBI well.

Subbarao, meanwhile, said the most important debate was about balancing between growth and inflation in the policy context, which is less understood by critics.

Inflation should concern governments more and it is a balance between growth and inflation that both governments and central banks struggle with.

"In my view," he said, ''this debate has been clouded by some oversimplifications.''

Subbarao said RBI's monetary policy aims not just at price stability and growth, but also the objective of achieving financial stability.

"To contend that the Reserve Bank is obsessed with inflation, oblivious to growth concerns, I think, is both inaccurate and unfair,'' he said.