RBI governor hints at soft monetary policy

Concerned over the declining growth,Reserve Bank Governor D Subbarao has indicated that the central bank couldreverse the tight monetary stance adopted by it since March 2010 to tameinflation.

"From here on we could expect reversal of monetarytightening," Subbarao told the BBC in an interview.

The RBI Governor, however, added it was "difficult tosay when that will take place and in what shape it will roll out".

The central bank is scheduled to announce the monetarypolicy review on January 24.

RBI has hiked key interest rate 13 times since March 2010 inits bid to check rising inflation, but it took a pause in its December monetarypolicy.

Moderation in inflation witnessed in November-December hasraised the hopes that RBI may start reducing key interest rate in its forthcomingcredit policies.

Headline inflation dropped to 9.1 per cent in November from9.73 per cent in the previous month, while as per the data food inflation hasdeclined to 0.42 per cent.

Subbarao said that although inflation still remained a risk,RBI was aware that it needed to boost growth amid an uncertain global economicenvironment.

"We have always been mindful of growth concerns,contrary to popular perceptions," Subbarao said adding "in fact, inour December statement we said that growth is a serious concern.

So I think the balance between growth and inflation willshift in 2012".

While the high interest rate has helped in moderatinginflation, the high cost of credit has taken its toll on the economic growth.The GDP slowed to 6.9 per cent in the second quarter of 2011-12 from 7.7 percent in the previous quarter.