Inflation, weak credit demand make policy decisions difficult for RBI: Chakrabarty

The Reserve Bank of India (RBI) has said the spectre of inflation and a weak demand for bank credit have combined to make policy options difficult for the central bank.

"The policy choices are becoming increasingly complex for the RBI, as signs of recovery in growth are still tentative, whereas inflation is clearly firming up," RBI deputy governor K C Chakrabarty said at a conference in Colombo.

"The challenge has to be seen, however, in the context of the ultimate objective, which is faster and durable recovery in growth. The costs of delay in timely exit are being discussed now; but there are costs of delay in economic recovery as well," Chakrabarty said.

"Early return to the fiscal consolidation path, and exit from the expansionary fiscal and accommodative monetary policy remain the key challenge," he said at a convention of the Association of Professional Bankers of Sri Lanka.

He said the RBI, as the manager of the borrowing programme of the government, has ensured smooth completion of the large borrowings so far, and its accommodative monetary stance, given the subdued demand for credit from the private sector has largely helped in this regard.

But, to speedf up recovery, he said it is important that demand for credit from the private sector picks up. The RBI has been highlighting to the commercial banks the need for improving the flow of credit for all genuine productive activities, without compromising on credit quality, he pointed out.