Current Slowdown Factored in Monetary Policy: Gokarn

Reserve Bank Deputy Governor Subir Gokarn today said the present slowdown in credit off take is a part of the demand adjustment process visualised by the central bank in its tight monetary policy stance. "This (low credit pick up) is, in fact, an anticipated outcome...That's part of the demand adjustment process that we visualised," Gokarn told reporters on the sidelines of a Ficci-IBA event here. "Things are happening as per our projections which will then result in some moderation in growth as well," he said, adding the RBI has also revised downward its overall credit growth projection to 18 percent from the earlier 19 percent. The Reserve Bank has hiked its key rates a record 11 times since March 2010 to batten down sticky inflation, which stood at 9.22 percent for July. The rate hikes can have an adverse impact on demand, which along with sliding global commodity prices, can be one of the key measures to drive to the inflation numbers. Off late, a slew of banks said they were witnessing slower-than-normal credit pick up and blamed the successive tightening by the central bank. Many banks have also downwardly revised their credit growth targets midway as a result of this phenomenon. On the forthcoming festive season and the resultant pressure on liquidity, he said "we have already said we aim to keep liquidity in a certain range. And if it is significantly disrupted from that range, we will obviously consider measures. But festival seasons are predicable and temporary, will not require any response, he said. Stating that domestic inflation will be guided by the global commodity prices and domestic consumption, Gokarn said he expects commodity prices to remain flat at the levels where they are now and hoped that this will lead to inflation going down from November because of the base effect. "Clearly by November-December, we will start to get the base effect if commodity prices remain flat, so inflation will come down mathematically. Our projection was that by November-December, the number will start to turn down, that projection remains intact," he said. Though global growth may be slower than what was expected, India need not worry as the driving factors of our growth is domestic consumption and public expenditure continue to be at play, he said. But the moot question is whether what is happening globally can impact commodity prices significantly or not and if it does it will help us bring down our inflation, he said.  

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