By Bibhudatta Pradhan and Anil Varma
Oct. 14 (Bloomberg) -- India will maintain its economic stimulus through this fiscal year and the central bank is unlikely to change its “accommodative” monetary policy now, said C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.
The Reserve Bank of India may opt to mop up excess money from the financial system as inflation accelerates in the coming months and may not raise benchmark interest rates, he said. The monetary authority may also discontinue its open-market debt purchases that it used in recent months to inject cash, while the $1.2 trillion economy may expand between 6 percent and 6.5 percent in the year ending March 31, he said in New Delhi today.
“As far as the monetary policy is concerned, the RBI has followed an accommodative” path, said Rangarajan, who served as the governor of the central bank between 1992 and 1997. “Unless inflationary pressures are very strong, there may not be a change in stance.”
The Reserve Bank has kept its policy rates at record lows after cutting the repurchase, or overnight lending rate, six times between October 2008 and April 2009 to shield the economy from the global recession. Gross domestic product grew 6.1 percent in the quarter ended June 30, accelerating for the first time since 2007.
The monetary authority forecasts the nation’s inflation rate will climb to 5 percent by March from 0.7 percent in the week ended Sept. 26. Governor Duvvuri Subbarao, who will review interest rates on Oct. 27, said earlier this month that he may need to tighten policy even before advanced economies.
The central bank “may not change the policy rate but may stop open-market operations” to slow price increases, Rangarajan said.
To contact the reporter on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Anil Varma in Mumbai at avarma3@bloomberg.net
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