Exit from stimulus is a challenge: RBI

“Growth concerns warrant a delayed exit, but inflation concerns call for an earlier exit. An early exit on inflation concerns runs the risk of derailing the fragile growth, while a delayed exit may engender inflation expectations,” RBI governor D Subbarao said at a banking seminar here.

The governor said while there is broad agreement that India should exit from the present “excessively” accommodative monetary and fiscal policies, there is less agreement on when and how to exit. He, however, added that India may need to exit from accommodative monetary policy earlier than advanced economies. The governor said there are incipient signs of recovery. “Industrial production has picked up in the past couple of months, but export growth remains negative. Business confidence surveys suggest recovery from the troughs touched a year ago although the confidence levels remain below the earlier peaks,” Subbarao said. He said, however, consumer price inflation is running in double digits on the back of high food prices. “When the headline Wholesale Price Inflation remains low (0.84 pc )...CPI inflation has been persistently high for almost a year.”

Subbarao said agriculture output is expected to suffer because of a weak monsoon which could keep upward pressure on food prices in the coming months. “High food prices are therefore a mix of structural and cyclical factors. While the buffer stock of foodgrains and better supply management could mitigate the adverse effects to an extent, imports are not an easy solution given the requirement,” he said.

Liked the story?

  • 0

    Happy
  • 0

    Amused
  • 0

    Sad
  • 0

    Frustrated
  • 0

    Angry