Fiscal tightening needed but no hurry: RBI deputy governor
16 Jun 2010
The Reserve Bank of India would continue to tighten monetary policy but the timing would depend on circumstances, RBI deputy governor Subir Gokarn said on Tuesday.
In an interview with The Economic Times, Gokaran warned against overreacting amid global economic uncertainty, casting doubt on the chances of an interest rate rise before a 27 July quarterly policy review meeting.
''The direction of policy is very clear and it is really a question of pacing,'' Gokarn said. ''One of the constraints that we operate under is that once the policy course has begun, we would not like to reverse it.''
The RBI raised rates in both March and April this year by 25 basis points or 0.25 per cent, and analysts and the market are betting on the central bank staying the course this time also when it meets on 27 July.
According to Gokarn, the next four to six weeks would be critical in terms of making an assessment of food prices. ''The RBI does recognise the fact that the actions taken during the crisis took our policy position far down the road and the current level of the policy instruments is not fully in alignment with the state of the economy,'' he said.
During the global credit crisis of 2008, the RBI cut rates aggressively and unveiled measures to boost liquidity. However, with the rebound in growth in 2009, the central bank has started to reverse its loose monetary policy.
