India sticks with stimulus despite good growth

NEW DELHI, December 11, 2009 (AFP) – India’s car sales are racing ahead, mobile phone sales are booming and share prices have rocketed, but policy makers are signalling a go-slow approach to ending economic stimulus and hiking rates. Even with inflationary pressure returning, central bankers and the government are suggesting only a gradual roll-back of stimulus steps, fearful of jeopardizing economic recovery in Asia’s third-largest economy.

“With higher growth, more hawkish rhetoric might have been expected from the Reserve Bank of India,” said HSBC economist Robert Prior-Wandesforde.

“However, if anything, recent comments from (central bank) governor (Duvvuri) Subbarao suggest he is in less of a hurry to move,” said Prior-Wandesforde, who does not expect any interest rate rises until March.

On Thursday, data showed food prices had risen by 19 percent from a year ago, driven by the driest monsoon in nearly four decades that has hit farm output. Potato prices had more than doubled while pulses were up 42 percent.

India’s government and central bank face a tricky balancing act in fighting inflation and keeping economic recovery on track, economists say.

“One has to be very careful in withdrawing stimul