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Inflation worries are back at Reserve Bank

The Reserve Bank of India (RBI) has underlined high inflation concerns while forecasters are expecting a GDP growth higher than projected earlier.

business Updated: Jul 27, 2009 21:12 IST
HT Correspondent

The Reserve Bank of India (RBI) has underlined high inflation concerns while forecasters are expecting a GDP growth higher than projected earlier. This suggests there would not be any policy rate cut when the central bank reviews its monetary policy on Tuesday.

A survey of professional forecasters conducted by RBI said benchmark inflation measured by wholesale prices is expected to touch 5.4 per cent in the fourth quarter of 2009-10 while GDP growth in 2009-10 is expected to be 6.5 per cent against their earlier forecast of 5.7 per cent.

However, information across the three major components of the GDP – manufacturing, services and agriculture -- indicates that GDP growth in the first quarter of 2009-10 may not show a major recovery, RBI said.

“There are indications of inflation firming up by the end of the year due to increase in commodity prices, delayed progress of monsoon potentially driving up food prices, expansionary fiscal policy, accommodative monetary policy..in the face of CPI (consumer price index) inflation remaining firm,” RBI said.

The government’s stimulus packages have raised aggregate demand while more than doubling the fiscal deficit. India needs to lower the very high fiscal deficit to reasonable levels if it has to return to the high growth path at the earliest, the central bank said in its report on “Macroeconomic and Monetary Developments – Frist Quarter Review 2009-10”. “

It said the global economic environment continues to remain uncertain, although the rate of contraction in economic activities and the extent of pressures on financial systems eased in the first quarter of 2009-10.

RBI said early indications for India suggest the revival impulses need to strengthen further to boost consumer and investor confidence, which could then set off a positive feedback loop to lift the growth momentum.