Soaring interest rates are not the sole reason for the slowdown in the economy, said the Deputy Governor of Reserve Bank of India, Mr. K. C. Chakrabarty. He added that for the interest rates to come down further, inflation has to be controlled.
Talking at a seminar of industry chamber Assocham, he said that interest rates cannot come down automatically, till inflation reduces. The only way of controlling trade deficit would be to bring down the core inflation rate to 1 percent. At present, the core inflation rate is 5 percent.
Chakrabarty's comments are speculated to be significant in the background of the much reported "rift" between the Finance Ministry and the central bank. It is reported that after RBI refused to slash key policy rates in its recent monetary policy review, Finance Minstry and RBI had a fallout. But, yesterday, the Finance Minister P. Chidambaram refuted these speculations as "media creation".
Talking further about the challenges for growth, which are currently faced by the economy, the Deputy Governor clarified that for controlling fiscal deficit, a key role has to be played by the manufacturing sector.