Mumbai, July 17: Former Reserve Bank governor Yaga Venugopal Reddy has said that inflation management cannot be left to the monetary authority alone but calls for more prudential measures from the government.
“Inflation is not simply a monetary phenomenon, it also calls for prudential measures from the fiscal side,” Reddy told PTI when sought his views on ways to tame inflation.
On what is the best way to tame inflation - a blanket credit control or selective squeeze - Reddy chose the latter as was suggested long back by the late RBI governor IG Patel, whose book he launched here last evening.
“The techniques of monetary policy influence the cost or availability of credit in general. But if the conditions in an economy are such that expansion in some directions is desirable even as credit in some fields needs to be curtailed, some degree of selectiveness must be introduced in monetary control,” said Reddy.
Explaining further, the former RBI governor said, “it is a complex situation. The available space for monetary policy action is very limited (to control inflation). At high interest rates, the effectiveness is less. But given the fiscal situation, everything has to be done to ensure that no instability results.
“My point is that monetary policy will be irresponsible if it ignores the possible impact of fiscal excesses,”he said.
Reddy was here for the launch of a book containing unpublished essays of the 14th RBI governor, the late IG Patel titled, “Of Economics, Policy and Development: An Intellectual Journey”.
The book, launched by Governor Subbarao at the RBI headquarters last evening, was edited by Reddy along with ex-RBI research director Deena Khatkhate.
Citing from the book, Reddy said the late Patel had recognised as early as in the 1950 the need for unconventional responses under special circumstances.
