Demand-side pressure on the economy can build up further and it is better to take some action now, Reserve Bank governor D Subbarao said on Wednesday, days after it surprised markets by raising interest rates.
?It is better to take some action now and continue with the exit strategy,? Subbarao said on the sidelines of a convocation ceremony, referring to debate over whether the central bank should opt for small, gradual policy moves to quell inflation or act more aggressively.
In the medium term, high inflation would threaten sustained economic growth, he noted.
Subbarao said the central bank will continue exiting stimulus to check the surging inflation even if it affects growth in short term.
The country is tightening monetary policy ahead of other countries, as growth is ?consolidating? and inflation pressures are ?stronger than we anticipated. The pace of price increases is worse than elsewhere,? Subbarao said.
Referring to emerging pressures, Subbarao said factory capacity utilisation had risen to 72%, off the record level of 76% scaled in 2007-08. ?Contribution of food to inflation was at 100% in November. By February, contribution of food to inflation has come down to 52%. These numbers say even if food inflation is high, non-food inflation is building up.?
Real estate prices were reaching pre-financial crisis levels, reflecting a further increase in demand-side pressures, he added.