Trade-off Emerging Between Price, Growth, Says RBI

Mumbai: A ‘large growth sacrifice’ in the event of a central bank’s pursuit of price stability can lead to the emergence of a trade-off between price stability and growth, Reserve Bank Governor Shaktikanta Das said on Tuesday.

To reduce the trade-offs and help an economy, central banks should employ multiple instruments like monetary policy, macroprudential regulation and micro-prudential supervision, Das said in an address in Kathmandu.

“The trade-off between price stability and growth emerges when the pursuit of price stability entails large growth sacrifice,” he said, delivering the inaugural Himalaya Shumsher Memorial Lecture organized by Nepal Rastra Bank.

He acknowledged that sometimes, the pursuit of price stability could be in conflict with financial stability, and added that recently some advanced economies experienced the same when tighter monetary policy raised concerns about the banking system stability. Das said central banks have a variety of instruments at their disposal beyond the conventional policy tools like negative interest rates, term lending facilities, asset purchase programmes and forward guidance.