Not easy to exit soft money policy: RBI chief
06 Oct 2009
The dilemma of balancing inflation control with the need for continued economic stimulus in a drought year continues to haunt policy-makers. Reserve Bank of India governor Duvvuri Subbarao said yesterday that India needs to exit from excessively accommodative monetary and fiscal polices, but there was no consensus on when or how.
Addressing the G-30 International Banking Seminar, part of the IMF-World Bank annual meeting, in Istanbul, the RBI chief also said the current high food price inflation reflected structural demand-supply imbalances and the impact of the weakest monsoon rains since 1972.
Subbarao said while there was broad agreement India needed to wind back some of its easy policy stance, there were risks if the move was mistimed. "We may need to exit from accommodative monetary policy earlier than advanced economies. This calls for a careful management of trade-offs: growth concerns warrant a delayed exit, but inflation concerns call for an earlier exit," he said.
"An early exit on inflation concerns runs the risk of derailing the fragile growth, while a delayed exit may engender inflation expectations," he elaborated.
The wholesale price index rose 0.8 percent in the year to 19 September, higher than expected, having fallen in annual terms in the three months to the end of August.
The WPI's food articles index rose an annual 16.3 per cent, and Subbarao noted consumer price inflation was in double digits because of food prices.
