A day before the release of the annual monetary policy review, the Reserve Bank of India (RBI) on Monday said that there is a need to check the decline in growth in the economy, raising hopes of a cut in policy rates.
“With significant upside risks to inflation, monetary policy needs to keep them anchored, while shifting the balance of policy to arrest the deceleration in growth momentum,” said RBI in its document ‘Macroeconomic and Monetary Developments in 2011-12’.In the document, which serves as a background to the monetary policy statement to be announced on Tuesday, the central bank said that though inflation has moderated to some extent, risks to inflation are still on the upside.
In its nearly two-year long battle against high inflation, the RBI has increased the policy rate 13 times between March 2010 and October 2011.
The inflation was 6.89% in March, while the growth during 2011-12 declined to a three-year low of 6.9%.
“The path of inflation in 2012-13 could remain sticky around current levels due to high oil prices, large suppressed inflation, exchange rate pass-through, impact of freight and tax hikes, wage pressure and structural impediments to supply response,” it said.
However, the report points out that the GDP growth is likely to improve moderately in the current financial year.
“Growth is likely to improve moderately in 2012-13, supported mainly by a pick-up in industry on the back of consumption demand and some improvement in investment,” said the central bank in its document.
The government has pegged the growth at 7.6 % for the current fiscal.