The Reserve Bank Deputy Governor Subir Gokarn today said exiting from the accommodative monetary policy has to be a gradual process and cannot be done at a single stroke.
A surprise 7.9 per cent Q2 growth numbers is a new element but not the only factor in determining the monetary policy, while inflation is giving divergent signals between the rate of rise in prices of food and manufactured items, Gokarn told reporters here today.
"When you talk of exit policies, you have to see it as a graded process and not a one-off approach. Focusing on growth for one year to abandoning growth to focus on inflation is a transition...Growth number is one input. To them, it is not the only factor," he said on the sidelines of a Ficci seminar.
It can be noted that food inflation had crossed 17 per cent in the third week of November, while overall inflation was just 1.34 per cent in October. "You have huge divergence here and it is a little unfair to say that we should be looking at only 17 per cent and not at 1.34 per cent. "We have to take all perspective on inflation and the significance of food inflation is that it is a risk that translates into wider spiral through expectations and that is something we have to be concerned about," Gokarn said.
Gokarn agreed that the central bank's focus has now shifted from just promoting economic growth to striking a balance between economic expansion and curbing inflation. "We have to ensure that recovery is not hurt while at the same time ensure that inflationary pressure do not go out of control," the RBI Deputy Governor said.
After the global financial crisis deepened following the collapse of the American financial powerhouse Lehman Brothers in mid-September last year, RBI had unleashed many liquidity easing measures. For the first time, it hinted exiting from these measures symbolically at the October monetary review.
He also said growth forecast for this fiscal might be upped after the strong second quarter numbers. When asked whether growth numbers would be revised by RBI, he said, "possibly." RBI has projected a six per cent GDP growth with an upward bias. Gokarn expects credit growth to pick up if the economic recovery is sustained.