Real GDP growth was 6.7 per cent in 2008-09 and is expected to be 6.0 per cent (with an upward bias) as per the Reserve Bank’s July 2009 projections. In view of the country specific features, we may need to exit from accommodative monetary policy earlier than advanced economies.
This calls for careful management of trade-offs: growth concerns warrant a delayed exist, but inflation concerns call for an earlier exit. An early exit on inflation concerns runs the risk of derailing the fragile growth, while a delayed exit may engender inflation expectations.