Economy recovering, but inflation a worry

Economy recovering, but inflation a worry
The Financial Express, November 25, 2009, Page 13

Agencies, fe Bureaus, Mumbai

Newly-appointed RBI deputy governor Subir Gokarn on Tuesday said though the economy has returned to normalcy, it faces newer challenges such as rising inflation and capital inflows.

“We are getting back to a normal situation on the macro economy. That criticality has changed a bit now and we are dealing with a number of other pressures...inflation and capital flows being the major ones. The possibility that these will expand and the implications they will bring for currency and reserve or liquidity management needs to be closely watched,” Gokarn said in his first interaction with the media here after taking charge on Tuesday.

Gokarn said it is necessary to be careful while dealing with these and must not underestimate the impact of fiscal measures taken over the past year while managing the global economic crisis.

“Exit (from a softer monetary policy of low interest rates) is clearly going to be done very strategically. How we balance it, how we sequence it are the challenges that we face. Even as we do that, the risk of upsetting the apple-cart is high and we cannot underestimate them,” Gokarn said.

The massive influx of foreign funds into the domestic stock markets has led to a phenomenal rise in the rupee in the recent past, making the country's exports uncompetitive in the global market and worrying policymakers.

In his new post, Gokarn will look after the monetary policy department, department of economic analysis and policy among others. His role will be important as the RBI currently faces the challenge of pushing economic growth while checking inflation.

“Gokarn will also represent the Reserve Bank at the G-20 deputies’ forum,” the RBI said. Gokarn has been appointed as the deputy governor of the RBI in place of Rakesh Mohan, who had resigned earlier this year.

“Gokarn has been appointed deputy governor for three years from the date of his taking over. He will be the fourth deputy governor, the other three being Shyamala Gopinath, Usha Thorat and KC Chakrabarty,” RBI said.

Prior to joining the RBI, Gokarn was the chief economist of rating agency Standard & Poor’s Asia-Pacific. He assumed the position in August 2007 after being the executive director & chief economist of Crisil, in which S&P’s acquired a majority stake in 2005.