RBI deputy governor Subir Gokarn said the central bank needed to address the rapidly mounting demand-side inflationary pressures while ensuring that the recovery was not cut short by a surge in interest rates.
“The current inflationary scenario in India, which, as they have been saying in our recent assessment, is not very reassuring,” said Gokarn. ?In our mid-quarter assessment last month, we indicated that the normalisation process is now close to being complete and that further actions on rates and liquidity will be driven more significantly by what the growth and inflation numbers tell us, both domestically and globally, ?? he said. RBI deputy governor noted that recent data suggest that the central bank?s approach is working, with the economy set to grow at a reasonably healthy rate during the current year and the inflation rate beginning to decline, including, significantly, in the manufacturing sector, where inflation is seen as being most responsive to monetary actions.
?This approach must be viewed in the context of a long-standing policy commitment to maintain a balance between growth and inflation in the short run, while fostering faster growth with lower inflation over long periods of time,? he added.
The fact that these inflationary pressures emerged rather quickly in a situation in which the economy was just beginning to recover from the significant slowdown of 2008-09 made the policy challenge more complicated.