Seeking to allay apprehensions that the Reserve Bank of India (RBI) may soon revert to tight money policy to tackle the upward movement of inflation expected in the coming months, RBI Governor D. Subbarao on Tuesday maintained that the current soft monetary policy approach adopted as a measure to combat the fall-out of the global financial crisis would continue until the economy is securely on the growth track.

At the same time, setting timelines for an eventual reversal of the expansionist monetary policy which had been put in place to tackle the economic slowdown and spurring growth, Dr. Subbarao said: “Especially on monetary policy, we [the RBI] will not exit unless we are sure that recovery is secured...but soon thereafter, when we make the judgement that the recovery is secured, we have to unwind the accommodative monetary policy”.

The RBI Governor, however, pointed out that the government and the apex bank would have to then take a call on the timing of withdrawing the stimulus measures which had been injected to perk up the slowing economy. And this, he said, would be sooner than in most of the other countries.


Dr. Subbarao was chairing a roundtable on ‘The way ahead’ at a two-day conference on ‘International cooperation in times of global crisis: Views from G20 countries’ organised jointly by ICRIER (Indian Council for Research on International Economic Relations), the World Bank and the IMF along with two European think-tanks.

Laying down the road map for the change in approach, Dr. Subbarao said that while unwinding the soft monetary policies, the RBI would look at a number of factors such as the WPI (wholesale price index) inflation, the CPI (consumer price index) inflation, the various components within the inflation indices, the trend of industrial growth and credit expansion. “This question of exit will be upon us much sooner than most other countries. We have to take a call on supporting the recovery and stemming inflationary pressure,” he said.


On the divergence in inflation indices, Dr. Subbarao pointed out that the negative WPI-based inflation was statistical in nature. “There are inflationary pressures this fiscal ...and CPI inflation is in double digit,” he said while noting that he expected WPI inflation at 5.2 per cent plus by the end of this fiscal.

Incidentally, the RBI Governor’s stand on the issue is fully in tune with that of Finance Minister Pranab Mukherjee. At a recent interaction with the Forum of Financial Writers, Mr. Mukherjee had said that the time was not yet ripe to withdraw the stimulus packages extended to the industry to combat the slowdown. “We do not want the people to get a rude shock,” he had said.


RBI predicts 6 per cent inflation by March September 18, 2009

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