A revival in investment activity, which is key to stimulating growth, depends particularly on the recent policy announcements by the government being translated into effective actions, Subbarao said while announcing the second quarterly review of the monetary policy.
"Yesterday's statement by the Finance Minister reaffirming commitment to fiscal consolidation will open up space for monetary policy to restrain inflation and support growth," he said.
Among other factors, Subbarao said, the stance of the credit policy is to reinforce the "positive impact" of the government policy actions on growth as inflation risks moderate.
He said that as recent policy initiatives by the government start yielding results in terms of revitalising activity, they will open up space for monetary policy to work in concert to stimulate growth.
"However, in doing so, it is important not to lose sight of the primary objective of managing inflation and inflation expectations," Subbarao added.
Finance Minister P Chidambaram yesterday announced a five year roadmap for fiscal consolidation to promote investments, contain inflation and take India to high growth trajectory.
Besides, the government has announced a slew of reforms measures, including raising diesel price, capping supply of subsidised LPG cylinders and further liberalising FDI policy, to stimulate economic growth.
