RBI says demand moderating, inflation will come down

The Reserve Bank of India today said domestic demand is starting to moderate indicating that inflation would come down.

The Reserve Bank of India on Thursday said domestic demand is starting to moderate indicating that inflation would come down.

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"We think that this moderation in demand that we are seeing this year is going to help inflation come down, along with any potential softening of commodity prices...these are two factors that have been keeping the inflation up," RBI Deputy Governor Subir Gokarn told reporters in Bangalore.

"...and the fact that at least domestic demand is starting to moderate for us is an indication that inflation will come down", he said after delivering an address on inflation and growth to members of the Federation of Karnataka Chambers of Commerce and Industry (FKCCI).

Gokarn added: "...the (GDP) growth rate this year will be more consistent with a more moderate inflation trajectory...".

He said the RBI last month gave its outlook that GDP would grow "roughly eight per cent" in the current fiscal. "It's roughly at that level (GDP growth of eight %) that we expect inflationary pressure to start easing off".

Gokarn said it's "our judgement now" that "non-inflationary sustained rate of growth" would start happening when the economy grows at roughly eight per cent.

Asked about the impact of the "global scene" on Indian economy and its growth, he said so far the impact has largely been on financial markets and commodity prices. "That's not enough of a basis to completely rethink the growth outlook".