RBI chief says rate pause not a full stop

MUMBAI Fri Jan 7, 2011 9:02pm IST

Reserve Bank of India Governor Duvvuri Subbarao poses before a meeting with bankers at the head office in Mumbai April 20, 2010. REUTERS/Arko Datta/Files

Reserve Bank of India Governor Duvvuri Subbarao poses before a meeting with bankers at the head office in Mumbai April 20, 2010.

Credit: Reuters/Arko Datta/Files

Related Topics

MUMBAI (Reuters) - The Reserve Bank of India (RBI) governor Duvvuri Subbarao said on Friday a pause in its tightening cycle should be interpreted as a comma and not a full stop, indicating further monetary policy tightening going ahead.

Subbarao told a conference in New Delhi the RBI was aiming to improve transparency and would not surprise markets with unexpected actions.

"While we have not surrendered our flexibility to take policy action as and when warranted, more frequent scheduling of policy reviews reduces the need for off-cycle action and thereby minimises the surprise element," Subbarao said.

The RBI is due to review its monetary policy on Jan. 25 and is widely expected to raise rates by at least 25 basis points, after pausing in December, on the back of a surge in inflationary pressure.

"Inside the Reserve Bank, the view was that within the policy trajectory, it did not matter if we paused briefly as long as we remained committed to the eventual outcome.

"The dilemma then boiled down to communicating to the market that our action should be interpreted only as a comma and not a full stop," he told a conference on the Dilemmas in Central Bank Communication held in the capital city.

The Reserve Bank of India has been the most aggressive major central bank in Asia, lifting interest rates six times last year to fight surging prices being spurred by rising food costs in an economy growing at nearly 9 percent.

A recent surge in food price inflation has triggered analysts and dealers to expect the central bank to expedite its policy tightening cycle.

The RBI has said last month it expects WPI inflation to ease to 5.5 percent in the current fiscal year to end-March, but also said inflationary risks are to the upside.

India's food inflation rose for the fifth straight week to the highest in more than a year, reinforcing fears it has spilt over to broader prices and cementing expectations of a January interest rate hike.

Subbarao also said there was a dilemma in the market between normal and neutral rates.

"It is, however, not possible to precisely define the neutral rate for a rapidly growing and structurally transforming economy like that of India. On the other hand, 'normal' rates can be broadly inferred from the crest and trough of the policy rates over the growth-inflation cycle."

(Editing by Malini Menon)

FILED UNDER:
Photo

After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

Obama's India Visit

Reuters Showcase

RK Laxman Dead

RK Laxman Dead

'Common Man' cartoonist RK Laxman dead at 93  Full Article 

Nuclear Group

Nuclear Group

China urges India to take steps to satisfy standards of NSG  Full Article 

India’s Male Tenor

India’s Male Tenor

India’s lone male tenor wants to ‘Indianise’ opera  Full Article 

Facebook Outage

Facebook Outage

Hacker group claims it is behind outages at Facebook, other sites  Full Article 

U.S. Blizzard

U.S. Blizzard

`Life-threatening' blizzard shuts down much of U.S. Northeast  Full Article 

Australian Open

Australian Open

Berdych ends Nadal tyranny on day of shocks  Full Article 

Fashionable Modi

Fashionable Modi

When Modi met Obama, his name was all over - his suit  Full Article 

Photo

Auschwitz Anniversary

Last survivors recall Auschwitz, ask if lessons learned  Full Article | Related Story 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage