Indications are that interest rates would again begin to rise but not before the second quarter of 2010. The Reserve Bank of India (RBI) on Tuesday paused a money supply easing that began in September 2008 and said reversal of this policy would happen after it sees certainty in economic recovery.
The central bank retained its 2009-10 GDP growth target at 6 per cent while stating that the growth could be higher and accordingly, expects credit growth in the current year to be around 20 per cent from less than 17 per cent now.
The RBI, at its first quarter review of monetary policy, kept its policy rates as balances credit needs for growth while checking inflationary expectations.
The wholesale price inflation is expected to rise to 5 per cent by the end of March 2010, which would make it imperative for the RBI to start tightening monetary policy.
The RBI feels overall macroeconomic scenario continues to be uncertain, although stimulus measures are expected to boost demand in 2009-10.
“The task for the Reserve Bank is to maintain the accommodative monetary stance till demand conditions further improve and the credit flow takes hold, but to be ready with a roadmap to reverse the expansionary stance quickly and effectively thereafter,” said RBI Governor, D Subbarao.
“We suspect a rate move is still several months away and stick with the view that monetary policy will begin to be tightened from about April next year,”said Robert Prior-Wandesforde, Senior Asian Economist at HSBC.
{{/usCountry}}“We suspect a rate move is still several months away and stick with the view that monetary policy will begin to be tightened from about April next year,”said Robert Prior-Wandesforde, Senior Asian Economist at HSBC.
{{/usCountry}}Chanda Kochhar, Managing Director of ICICI Bank said “the central bank is focused on making sure that the fiscal stimulus to growth and renewed private sector investment proceed hand in hand.”