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Thursday, May 13, 2010

Greek crisis not to change RBI's exit roadmap: Gokarn

Reserve Bank Deputy Governor Subir Gokarn today said the Greek debt crisis will not force the central bank to give up its hawkish monetary policy stance, as it has already factored in the impact of global uncertainties.

"We do not believe that there is any reason to change our approach. Because it (the Greek crisis) is not showing signs of spilling over to a larger real economy problem," Gokarn told reporters here.

The apex bank reduced its key rates several times to fight the financial crisis that broke out in end-2008, but started gradually reversing the easy money stance from October last year to contain inflationary pressures in the economy.

"It (the crisis) reflects, obviously, the continuing global uncertain environment, which is a factor we have already built into our exit strategy," Gokarn, who was earlier an economist with international rating agency Standard and Poor's, said.

The central bank, however, is keeping a close watch on the developments unfolding in global markets, Gokarn said.

"There are packages in place, there are very serious efforts to contain and not let the crisis to spread to other countries. But we keep a watch on things and see how it pans out," Gokarn said.

In a bid to prevent the Greek debt crisis from spreading to other economies, euro zone leaders recently agreed on a bailout package of nearly USD one trillion (750 billion euro) for Greece, giving comfort to markets worldwide.

Asian economies have developed their 'autonomous growth drivers' and eschewed dependence on western economies, which has enabled them to withstand the impact of financial turmoil and maintain faster growth, Gokarn said.

However, revival in the US and Europe is must for a global economic recovery, as these zones account for a larger chunk of the global GDP, he said.

On capital flows into the domestic market, the Deputy Governor said that fund inflows are likely to gain momentum in the months ahead, as India's growth is expected to attract more foreign investment.

Gokarn said the central bank is monitoring various forms of inflows and is of the view that equity flows are preferable to debt capital in a healthy economy.

Replying to a query, Gokarn said that policymakers will have to wait till end-July to make a proper assessment of the monsoon and its impact on inflation. Wholesale price-based inflation, which stood at 9.9 per cent in March, is expected to cool down in April.

Further, Gokarn said the Index of Industrial Production (IIP), which grew to 13.5 per cent in March, was in consonance with the RBI's outlook.

IIP growth slowed down in March from 15.1 per cent in February on account of a partial roll back of the government's fiscal stimulus and rising interest rates.

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