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Home » Finance Current Affairs » Early policy unwind riskier: RBI deputy governor

Early policy unwind riskier: RBI deputy governor

Current Affairs

HTML clipboardNEW YORK: The Reserve Bank of India's deputy governor hinted on Thursday it was too soon for the central bank to unwind its accommodative monetary policy even though the South Asian economy has shown signs of resilience.

"It's risky to hasten the issue of exit" strategy, Shyamala Gopinath told an audience at an Indian
investment conference in New York, adding there is a "risk of doing it earlier than later."

The Reserve Bank of India has slashed its benchmark lending rate by 425 basis points since last October, pumping massive liquidity into the markets as the global downturn hit Asia's third-largest economy harder than expected.

Analysts have said the first change in an accommodative policy may come through withdrawing some of this liquidity, such as by reversing some of the sharp cuts in the cash reserve ratio for banks.

The economy grew 6.7 percent in 2008 and 2009, slower than rates of 9 percent or higher seen in the previous three years. Policymakers expect India's economic growth to slow toward 6 percent in 2009 and 2010.

Earlier this week, RBI governor Duvvuri Subbarao sounded a harsher stance.

"This question of exit will be upon us much sooner than other countries," Subbarao said. "We have to take a call between supporting recovery from the crisis and stemming inflationary pressures," he said.

Subbarao also said the central bank would look at factors including wholesale price-based inflation and industrial output before making the call to shift its policy stance.

"We are looking at several factors ... not just one," Gopinath added.

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