Concerned over the declining growth, Reserve Bank Governor D Subbarao has indicated that the central bank could reverse the tight monetary stance adopted by it since March 2010 to tame inflation.
“From here on we could expect reversal of monetary tightening,” Subbarao told the BBC in an interview.
The RBI Governor, however, added it was “difficult to say when that will take place and in what shape it will roll out”.
The central bank is scheduled to announce the monetary policy review on January 24.
RBI has hiked key interest rate 13 times since March 2010 in its bid to check rising inflation, but it took a pause in its December monetary policy.
Moderation in inflation witnessed in November-December has raised the hopes that RBI may start reducing key interest rate in its forthcoming credit policies.
Headline inflation dropped to 9.1 per cent in November from 9.73 per cent in the previous month, while as per the data food inflation has declined to 0.42 per cent.
Subbarao said that although inflation still remained a risk, RBI was aware that it needed to boost growth amid an uncertain global economic environment.
“We have always been mindful of growth concerns, contrary to popular perceptions,” Subbarao said adding “in fact, in our December statement we said that growth is a serious concern. So I think the balance between growth and inflation will shift in 2012”.
While the high interest rate has helped in moderating inflation, the high cost of credit has taken its toll on the economic growth. The GDP slowed to 6.9 per cent in the second quarter of 2011-12 from 7.7 per cent in the previous quarter.