After the pause, RBI governor hints at soft monetary policy

Concerned over declining growth, Reserve Bank of India (RBI) governor D Subbarao has indicated the central bank could reverse the tight monetary stance it adopted since March 2010 to tame inflation.

"From here, we could expect a reversal of the monetary tightening," Subbarao told BBC in an interview. RBI governor, however, added it was "difficult to say when that would take place, and in what shape it would roll out". The central bank is scheduled to announce the monetary policy review on January 24.

RBI has raised key interest rate 13 times since March 2010 to check rising inflation, before it took a pause in its December monetary policy.

Moderation in inflation witnessed in November-December has raised hopes RBI may start reducing the key interest rate in forthcoming credit policies. Headline inflation dropped to 9.1 per cent in November from 9.73 per cent in the previous month, while food inflation declined to 0.42 per cent.

Subbarao said though inflation still remained a risk, RBI was aware it needed to boost growth amid an uncertain global economic environment. "We have always been mindful of growth concerns, contrary to popular perceptions," Subbarao said, adding, "In our December statement, we said growth was a serious concern. So, I think the balance between growth and inflation will shift in 2012." While the high interest rate has helped in moderating inflation, the high cost of credit has taken its toll on growth. The growth in gross domestic product slowed to 6.9 per cent in the second quarter from 7.7 per cent in the first.