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RBI needs to look at price stability and growth: FM

A day ahead of RBI's monetary policy review, Finance Minister P Chidambaram on Monday said the mandate of a central bank is not only to ensure price stability but also to promote growth and generate employment, reports media.  

Stating he did not expect any hike in interest rates by the commercial banks, the Minister said they had enough funds to meet credit demands and that the onus of coming up with large investment projects rests with the industry.

"All over the world thinking in changing. The mandate of a central bank must not only be price stability. The mandate of central bank must be seen as part of larger mandate which includes price stability, growth and maximising employment," he said.

Chidambaram's statement comes on the eve of Reserve Bank's first quarter monetary review in which the central bank is expected to address the several conflicting concerns including volatile exchange rate, liquidity crunch and slowing growth.

RBI Governor D Subbarao had last week met Prime Minister Manmohan Singh and Chidambaram and is believed to have discussed the current macro-economic situation.

"I have tried to argue that while I acknowledge that the central banks mandate is price stability, price stability must be seen as part of larger mandate of growth and employment," Chidambaram said.

Admitting, the world over governments and central banks have not been on the same page, he said, "in fact this antagonism between central bank and government is very functional antagonism, a healthy antagonism. I am not saying it is unhealthy, it is perhaps healthy".

RBI has been maintaining a tight monetary stance overlooking the pressure from the government as well as the industry for a steep cut in interest rate to promote sagging growth.

"There were no emergency circumstances to issue the impugned ordinance. Hence, it does not comply with the terms of Article 123. Therefore, the impugned notification is unconstitutional and is liable to be declared unconstitutional and void," according to the PIL.

"Tomorrow, the RBI Governor will make a quarterly review policy statement. So let us wait for the Governor statement which will throw more clarity on the subject," Chidambaram said.

The Minister, however, sounded confident that interest rates of commercial banks will remain stable.

"I do not expect these (RBI) liquidity measures to result in an increase in the bank lending rates. In fact bank rates have been stable and all chairperson of banks have told me that they have no plans to increase lending rates.

"So the current interest rates will remain. I can't say whether they will come down. But I am almost certain they will not go up, " the Finance Minister said.