PUNE, June 20 India's central bank should look at eventually reversing the expansionary policy pursued in the wake of the global economic crisis, Governor Duvvuri Subbarao said on Saturday.

“All of you would agree around the world also there is concern, there is attention being paid to reverse these expansionary policies,” Subbarao told students at a banking institute. “In the Reserve Bank of India, we will be looking at reversing the expansionary policy at an appropriate time.”

Subbarao did not say how or when the policy will be reversed but said he will not do it right now or in the near future.

In its efforts to stimulate the economy, the central bank has cut its key lending rate by 425 basis points to 4.75 per cent since the collapse of Lehman Brothers last year. The rate at which it absorbs surplus cash from the banking system has been cut by 275 basis points to 3.25 per cent.

As well, it has cut the ratio of cash that banks must deposit with the central bank to 5 per cent from 9 per cent in the middle of last year.

Subbarao said the stimulus measures of both the government and the central bank have worked to some extent. “Certainly we are seeing our own versions of green shoots in certain sectors like cement, steel and coal,” he said.

He also said growth in vehicle sales as well as a pick up in rail freight traffic was encouraging. “But as I said, this is not a complete picture and there are a number of sectors of the economy which have to see a significant revival,” he said.

In April, the central bank said it expected Asias third largest economy to expand by about six per cent in the fiscal year 2009-10 ending in March, below last fiscal year's 6.7 per cent.

Many private sector economists forecast growth of between 5.8 to 7.2 per cent. The head of prime ministers economic advisory council predicted on Saturday that growth would match at least last years level.

Subbarao said although the wholesale price index fell in the first week of June, food and primary articles inflation was significant. Consumer price index inflation was 9 percent, he said.

The governor said the central bank looked at a number of variables of inflation including an assessment of inflationary expectations to formulate its policy.

Indias wholesale price index fell 1.61 per cent in the 12 months to June 6, compared with the previous weeks annual rise of 0.13 per cent, government data showed on Thursday. The fall was the first in at least three decades.

“There are definite trends coming through although the headline index is negative... Oil prices are firming up and commodity prices are increasing around the world. Food production is below the trend level,” Subbarao said.

Subbarao declined to comment on whether he expected the government to increase the borrowing programme at its final budget to be unveiled on July 6. —Reuters