Stimuli exit unlikely till March?
Rangarajan said the RBI would have to start withdrawing slowly while focusing on refraining from any premature withdrawal.
Chakravarthi Rangarajan, chairman of the prime minister’s economic advisory council, said on Thursday the stimulus packages announced over the past many months “will be sufficient till March 2010.”
Does that mean an exit is unlikely before that?
“Dr Rangarajan is most probably talking about fiscal stimulus, while the RBI governor (D Subbarao) spoke (on Tuesday) from a monetary point of view,” points out Jahangir Aziz, India economist at JP Morgan.
“Rangarajan is referring to a strong growth in indicators like the IIP. My guess is that the market rates will continue to be hard because of the threat of tightening by the RBI. The RBI will start with hiking the cash reserve ratio in the first quarter of 2010 before possibly hiking policy rates in March,” said Aziz said.
Rangarajan said credit offtake has already started showing the signs of recovery.
“There will be some hardening of interest rates. As the economy picks up, there will be greater demand for credit. The banking system has enough liquidity to meet that demand,” he said on the sidelines of a seminar on global meltdown in
Hyderabad on Thursday.
Dharmakirti Joshi, principal economist, Crisil, said an exit strategy is a delicate balancing act, and will be based on the call whether industry is picking itself up.
“A rise in credit offtake will also be a sign. Clearly, the worst is over but the impact of drought will also have to be taken in. I expect the RBI to first start withdrawing liquidity in January-March. The RBI has cut rates sharply so there is enough room for a gradual and measured hike in rates,” Joshi said.
Rangarajan said the RBI would have to start withdrawing slowly while focusing on refraining from any premature withdrawal.
While watching the liquidity situation, the apex bank would also be wary of re emergence of inflationary pressures, he said.
Though the industry has started showing signs of recovery, Rangarajan said the lag impact of the slowdown would be felt throughout the year.
However, the former central banker was optimistic about the economy coming back on
rails.
“As far as India is concerned, we will see definite signs of recovery in the second half of 2009-10 and the economy will grow between 6% and 6.5%. Fiscal 2010-11 will see a distinct improvement and economy will grow between 7% and 8%. To go back to 9% growth, we have to wait for the world economy to improve and world trade to pick up,” Rangarajan said.
- With inputs from Joel Rebello
Does that mean an exit is unlikely before that?
“Dr Rangarajan is most probably talking about fiscal stimulus, while the RBI governor (D Subbarao) spoke (on Tuesday) from a monetary point of view,” points out Jahangir Aziz, India economist at JP Morgan.
“Rangarajan is referring to a strong growth in indicators like the IIP. My guess is that the market rates will continue to be hard because of the threat of tightening by the RBI. The RBI will start with hiking the cash reserve ratio in the first quarter of 2010 before possibly hiking policy rates in March,” said Aziz said.
Rangarajan said credit offtake has already started showing the signs of recovery.
“There will be some hardening of interest rates. As the economy picks up, there will be greater demand for credit. The banking system has enough liquidity to meet that demand,” he said on the sidelines of a seminar on global meltdown in
Hyderabad on Thursday.
Dharmakirti Joshi, principal economist, Crisil, said an exit strategy is a delicate balancing act, and will be based on the call whether industry is picking itself up.
“A rise in credit offtake will also be a sign. Clearly, the worst is over but the impact of drought will also have to be taken in. I expect the RBI to first start withdrawing liquidity in January-March. The RBI has cut rates sharply so there is enough room for a gradual and measured hike in rates,” Joshi said.
Rangarajan said the RBI would have to start withdrawing slowly while focusing on refraining from any premature withdrawal.
While watching the liquidity situation, the apex bank would also be wary of re emergence of inflationary pressures, he said.
Though the industry has started showing signs of recovery, Rangarajan said the lag impact of the slowdown would be felt throughout the year.
However, the former central banker was optimistic about the economy coming back on
rails.
“As far as India is concerned, we will see definite signs of recovery in the second half of 2009-10 and the economy will grow between 6% and 6.5%. Fiscal 2010-11 will see a distinct improvement and economy will grow between 7% and 8%. To go back to 9% growth, we have to wait for the world economy to improve and world trade to pick up,” Rangarajan said.
- With inputs from Joel Rebello