RBI wants a gradual exit from stimulus policies

The Reserve Bank is aiming at gradual exit from the economic stimulus action as the focus of monetary policy shifts from managing the economic crisis to managing the recovery.

The design of exit strategy from the stimulus programme, especially its timing, will largely depend on the respective macroeconomic and financial market conditions of individual countries, Shyamala Gopinath, deputy governor of the Reserve Bank of India (RBI) said. 

There has been a discernible improvement in the economic outlook globally as also in India. But the issue here is that given differences in prospects, monetary policies may begin to diverge considerably between the advanced and emerging economies, she told delegates at the third India-China finance conference in Mumbai on Tuesday.

"Strong aggregate demand conditions and a well-functioning domestic banking system may pave the way for early, yet gradual, exit from the expansionary policy," she said.

There is, however, no doubt that given the level of integration among the economies, each country will also have to take into account the external factors. But, she said, the exit debate in India is qualitatively different from that in other advanced and emerging economies because of the unique features of its macroeconomic context.

India is actively confronted with an upturn in inflation, whereas most other countries do not face an immediate risk of inflation. While the spike in wholesale price inflation may be largely on account of the base effect of sharp increases in prices recorded a year ago, the inflation based on different CPIs continue to remain stubborn at double digits and the prices of food articles and essential commodities in WPI increased substantially on year-on-year basis, she pointed out.