Reserve Bank sensitive to voices of poor: Subbarao

In order to combat inflation,the Reserve Bank has had to gradually and continuously tighten monetary policy,he said. This has led to criticism,especially from industry and business sections,that higher interest rates engendered by our policy have curtailed growth. This grievance is legitimate,and to some extent,understandable. The Reserve Bank is sensitive to that criticism, Subbarao said.

The RBI had hiked repo rate 13 times to bring down inflation since March 2010.

We need to bring inflation down to secure sustainable growth in the medium term. Some short-term sacrifice of growth is an inevitable cost to pay for price stability in a supply constrained economy, he said.

Before the crisis,financial stability was not an explicit objective. Policy makers,particularly central bankers were sensitive to it.

The crisis has taught us that financial stability has to be part of the explicit policy calculus alongside price stability and macroeconomic stability. The crisis has also taught us that all three variables price stability,financial stability and growth are interlinked and we cannot afford to compromise on any of them, he said.

The challenge for all central bankers,particularly for emerging economy central bankers,is to strike the right balance among the three variables depending on their specific macroeconomic context.

For us in India,this is a more complex challenge as we have to ensure that credit is available for all productive activities at affordable cost so as to raise the potential output of the economy. We have,however,to do so without compromising the integrity of our financial system, he said.

Subbarao said a big challenge going forward will be how to raise the quantum of institutional financing for infrastructure building without compromising the stability of the banking system.

The 12th Plan period,which will begin in April 2012,less than four months from now,is projecting investment in infrastructure,over the five year period 2012-17,of $1 trillion,double the outlay for the 11th Five Year Plan.

Mobilising funding of this order is a challenge at all times,particularly so in our context where long term financing markets are not yet sufficiently deep,developed and open. So,the burden of financing infrastructure is falling largely on the banking system. The Reserve Bank has already relaxed regulatory norms to facilitate larger infrastructure financing by banks, he said.

On financial inclusion,he said only about 30,000 out of the nearly 600,000 habitations in the country have a bank branch,and even where banks have penetrated,it is not certain that they have reached out to the poor.