Business IdeasRBI will reassess soft policy stance: Thorat
The Reserve Bank of India (RBI) today said it would reassess its soft policy stance amid food inflation soaring past 17 per cent even as the the PM"s advisory panel and others called for tightening money supply.
- Dubai crisis may have some impact on remittances: RBI - Food prices must be reined in: Rangarajan - CSE tests find high level of contamination in Bhopal - Making banking mobile - Saraswat Bank to acquire Anyonya Co-op Bank - HDFC may extend new home loan offer
"Clearly now going forward, it (accommodative monetary stance) will have be to reassessed," RBI Deputy Governor Usha Thorat said at an ICRIER-OECD conference.
She said a fragile economic recovery was at the back of RBI when it continued accommodative stance in its October policy review.
However, the economy expanded by 7.9 per cent in the second quarter from 6.1 per cent in the previous quarter, giving hopes of durable economic rebound.
Thorat said the RBI is looking at wholesale price inflation to reach 6-6.5 per cent with upward bias by this fiscal end.
"CPI inflation is still elevated," she added.
Before the conference, Prime Minister"s Economic Advisory Council Chairman C Rangarajan told reporters that rising food prices are a matter of concern and must be reined in by the RBI otherwise they will push up prices of manufactured items as well.
"Food prices must be controlled, otherwise they have a tendency to lead to manufacturing inflation...This will require monetary action by RBI, especially (money) supply management," he said.
Thorat, however, said so far this year money supply growth has been very low.
"...This have implications for the kind of decision that we take on monetary policy," she added.
OECD Secretary General Angel Gurria said at the conference that the Reserve Bank has begun the process of tightening, perhaps further tightening may be warranted before prices slacken.
Food inflation crossed 17 per cent in the third week of November from over 15 per cent a week ago.
Thorat further said the RBI"s economic growth projection of 6 per cent with upward bias for the current fiscal may have to be reviewed at the time of next policy.
"It does seem that the overall growth forecast of 6 per cent with an upward bias made by the RBI may have to be reviewed at the time of next policy," she said.
Thorat, however, also said that exiting monetary easing measure is a challenge and managing crisis is easier than recovery.
RBI only tightened money supply symbolically in October policy review.
She said that capital flows has been managed but looking forward it can be another challenge.
"I think capital inflows is again an important issue because large capital inflows and asset price could feed on each other and this could be destabilising," Thorat said.