RBI should carefully normalise policy: Montek

RBI should carefully normalise policy: Montek

New Delhi: The Reserve Bank of India (RBI) should consider carefully returning to normal monetary policy, with growth firmly on track and inflation rising beyond its comfort zone, India’s top policy adviser said on Wednesday.

The central bank is widely expected to raise its key lending rate by 25 to 50 basis points in April when it meets to review monetary policy as it continues steps to roll-back stimulus measures.

“Clearly inflation is become closer, much more into the worrying area. Secondly, we’re much more confident the growth is picking up," Montek Singh Ahluwalia, deputy chairman of Planning Commission, told reporters.

India’s annual wholesale price inflation accelerated to 9.89% in February and the finance minister said it could top 10% in March.

“What is the balance between controlling inflation and protecting growth, is an issue which the people responsible for short-term monetary policy have to take a look at," Ahluwalia said.

India’s economy is seen expanding at over 7.2% in the year to March 2010, with growth expanding to 8.5% the year after and to 9% in 2011-12.

When asked if the strong growth and high inflation made a case for the central bank to return to a normal monetary policy, Ahluwalia said: “That is an issue I want the RBI to consider very carefully and I’ve no doubt they will make the right decision."

Ahluwalia declined to say what he thought the RBI would decide during its April review meeting.

He said inflation was a concern and needed to be brought down, but dismissed concerns of a prolonged period of double-digit inflation.

“Over the next two months, I expect to see inflation coming down."