Inflation management cannot be left to monetary policy alone, says Nirmala Sitharaman

Inflation management cannot be singularly left to the monetary policy, which has proved totally ineffective in many countries, says Sitharaman

Days ahead of the next monetary policy review by the Reserve Bank of India (RBI), Union finance minister Nirmala Sitharaman said on Thursday that inflation management could not singularly be left to the monetary policy, which has proved totally ineffective in many countries.

The RBI will have to synchronise the monetary policy with fiscal policy and other factors.

“The RBI will have to synchronise somewhat, maybe not as much synchronised as other western developed countries would do…I’m 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,” Sitharaman said at a conference on taming inflation.

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According to her, 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.

Her comments come days ahead of the RBI’s monetary policy review on September 30, where the central bank’s monetary policy committee is likely to increase policy interest rates further, though in a small measure, to tame inflation rising above its tolerance zone of 6 per cent.

India’s inflation management has several factors. The majority of those are outside the realm of monetary policy.

“India’s experience in handling inflation depends so much on so many different factors. The central bank, its instruments, and its interest rate management form a very critical part of it, but it cannot be the one and only one,” Sitharaman said.

Sitharaman said inflation is higher than the national level in states that have not reduced fuel prices…When states do not take enough steps, that part of India suffers, she said.