Public RelationsInflation to drive future action
Business Standard / New Delhi October 28, 2009, 0:09 IST
The policy review is an emphatic assurance that the central bank is watching, calibrating and now definitely timing for a quantitative exit road map. The hike of 100 basis points in the statutory liquidity ratio, which was reduced to 24 per cent after the global financial crisis last year, is the harbinger of changing headwinds, making India the second G20 to economy to underline a move towards monetary tightening.
Jan cement sales in high double-digit
Growth impulses may have begun to reverberate in key macroeconomic data — industrial activity is picking up, contraction in exports is declining and consumer and business sentiment is improving. The recovery has begun and the time is ripe to shift towards effective growth management.
The policy statement maintains its upward bias to growth, currently projected at 6 per cent; a conservative estimate. However, growth comes hand-in-hand with risks. In a supply-constrained economy like ours, weak monsoons and a low base have coincided with a pick-up in global commodity prices to translate into elevated inflation expectations.
Additionally, in an increasingly interlinked global economy, tightening ahead of the rest of the world would have served as a beacon for capital inflows, which tend to be volatile in nature. Clearly, costs from a policy reversal would add up in terms of a stronger currency appreciation, larger systemic liquidity and higher sterilisation costs — costs that the economy can ill-afford before returning to its high-growth trajectory.