Timing stimulus withdrawal is a challenge: RBI

The Reserve Bank of India (RBI) today said the timing of withdrawing the monetary and fiscal stimuli given to spur the economy poses a challenge to the government as well as the apex bank.

"There are several challenges on the way forward, including the timing and sequencing of exit from the expansionary fiscal and monetary policies," RBI Governor D Subbarao said while addressing an international conference on Funding of Deposit Insurance Systems.

"These issues (withdrawal of stimulus) are being debated all over the world and occupy the central place in our policy matrix too," he said.

The government has sacrificed Rs 1.68 lakh crore in revenue by way of duty cuts and other fiscal measures to help the industry tide over the international financial crisis triggered by the collapse of Lehman Brothers in September 2008.

As a result, the fiscal deficit is slated to go up to 6.8 per cent of the GDP in 2009-10 from 6.2 per cent a year ago.

The Reserve Bank had also cut CRR and key policy rates, in addition to taking a host of other initiatives to bring down interest rates.

Expressing concern over rising prices, Subbarao said," The challenge for the Reserve Bank is to support the recovery process without compromising on price stability."

Both the central bank and the Finance Ministry will have to take a call on withdrawal of stimulus packages with inflation rising at its fastest pace in a year in December and food inflation  hovering around 20 per cent.

Food inflation for the week ended January 2 was at 17.28 per cent while the wholesale price-based inflation has already surpassed the Reserve Bank of India's forecast of 6.5 per cent for the full fiscal.