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Monetary policy is not just inflation targeting: Anand Sinha

Last Updated: Monday, October 15, 2012 - 20:22

Mumbai: The scope of monetary policy has expanded beyond inflation targeting to factors like checking financial imbalances, Reserve Bank Deputy Governor Anand Sinha Monday said.

"The monetary policy has an expanded objective...It has a larger role than simple inflation targeting," Sinha told the Financial Times-Yes Bank organised banking summit here.

The central bankers now think that financial imbalances will also have to be considered before finalising the monetary policy, he said.

Calling for a closer coordination between the monetary and fiscal policies, Sinha said if they do not work in tandem, the economy will suffer.

The deputy governor also flagged the high gold demand, and said that there is a need to reduce its consumption given that gold imports affect balance of payments.

Incidentally, of the 4.3 percent current account deficit last year, one percentage point was contributed by gold imports, which had topped over USD 61 billion.

The rising incidence of loan restructuring or non-performing assets is a cause for introspection, Sinha said, adding that the RBI always asks banks to avoid any stress wherever it is controllable. The stress arises due to both global as well as local factors, he said.

When asked if there a move to let banks, which are allowed to invest in international commodity markets, invest in domestic markets as well, Sinha said it was not immediately on agenda of the central bank.

On the third round of quantitative easing by the US, Sinha said the emerging market economies get impacted through commodity price hikes and the resultant up-tick in inflation.


First Published: Monday, October 15, 2012 - 20:22
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