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RBI says recovery uneven; to adopt balance policy stance

Last Updated: Tuesday, January 12, 2010 - 23:39

Mumbai: Reserve Bank of India on Tuesday said the growth pattern suggests that economic revival is uneven and its monetary policy stance would be to support recovery and manage inflation.

"There is still an imbalance in the pattern of growth. This does not mean that recovery is not happening. But it does say that the recovery is uneven," RBI Deputy Governor Subir Gokarn told reporters on the sidelines of Bancon conference here.

The Reserve Bank, which will announce the quarterly review of its annual monetary policy, said it expects the food price inflation to ease post-March on the back good rabi production.
"Inflation seems to be plateauing as food prices will moderate when rabi crops come in," Gokarn said.

However, he warned that the current surge in food prices, if persists, will spread to wider economy as the recovery picks up.

"When the economy starts to grow and starts utilise the slack capacity there, the risk of food inflation spilling over in to wider surge increase...that is where the threat of inflationary spiral emerges," Gokarn said.
After rising to nearly 20 per cent in the previous week, food inflation eased a bit at 18.22 per cent towards the close of 2009 but households continued to feel the pinch as prices of pulses, potatoes and cereals were still ruling high.

"Our indications say that the capacity utilisation increasing across the sectors. When we move from low capacity utilisation to full capacity utilisation, the risk of transmitting food inflation in to product based inflation increases," Gokarn said.

The RBI`s objective is to support recovery with all possible ways, without allowing it to spread into the real economy, he said.

"We want the recovery going. We want to support it with all possible ways without allowing it to spiral into undesirable reach of inflation. That is the broad objective," Gokarn said.

He added that RBI continues to assess the domestic liquidity conditions and the inflow of capital and would take appropriate actions as the situation warrants.

"This (policy objective) includes the consideration of capital inflows and what they are going to with the domestic situation. But how we deal with it depends on the circumstances," he said.

Answering to a quetion on the central bank`s approach on Government borrowing in FY11, Gokarn said, the apex bank will make sure that borrowing will be conducted in a smooth manner but the strategy will be decided depending upon the requirements.

"The exact strategy and the instruments that would be used to accommodate the government borrowing program depending on the quantum of the requirements and the timing of the process," he said.


First Published: Tuesday, January 12, 2010 - 23:39
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