Monetary policy management becoming tougher: RBI governor

Reserve Bank of India (RBI) governor Duvvuri Subbarao today said it is a real challenge for the Reserve Bank to support economic growth and batten down the surging inflationary pressures, hinting that it will be a tight-rope walk for him on January 25.

The central bank is slated to unveil the third quarterly review of its monetary policy on January 25, when it is expected that RBI will tighten its policy tools by another 25-50 basis points for the seventh time in a row in this fiscal, as both food as well as headline inflation numbers have been on a northward-ho since the last policy announcement on November 2 when the bank had announced that monetary policy neutralisation process was over.

The RBI had so far upped key policy rates (short term lending and borrowing rates) six consecutive times to 6.25% and 5.25%, respectively, in its attempt to normalise the monetary policy that was on an expansion mode since the onset of the global financial meltdown with the fall of the Wall Street titans late 2007.

"Though we recovered faster from the crisis, inflation also caught up with us sooner than others. For the Reserve Bank the challenge is to calibrate monetary policy taking into account the demands of inflation management and the demand of supportive recovery," the governor told the students of the Indira Gandhi Institute of development research on their convocation here today.

"A lot of other countries are still flirting with deflation... and are still concerned that they might have deflation. On the other hand, we are having a surging inflation," the governor said, and noted that there has been broad-based recovery across the globe in general and across the sectors of the domestic economy, following the slew of fiscal and monetary prop-ups.