RBI may not cut interest rates at policy review tomorrow
The Reserve Bank has indicated that it may not cut interest rates to promote growth in its policy review on Tuesday as inflation, which came down in December, still poses a risk to the economy.india Updated: Jan 23, 2012 20:28 IST
The Reserve Bank has indicated that it may not cut interest rates to promote growth in its policy review on Tuesday as inflation, which came down in December, still poses a risk to the economy.
The GDP growth rate during the current fiscal, the RBI said, is likely to fall below its earlier projection of 7.6%, though inflation may moderate to 7% by March-end.
"The critical factors in the rate action ahead will be core inflation and exchange rate pass-through (impact of rupee depreciation on oil prices)... Monetary actions will need to strike a balance between risks to growth and inflation," said the Macroeconomic and Monetary Developments Review released by the RBI on the eve of its third quarter policy announcement.
The RBI has increased interest rates 13 times since March, 2010, to contain inflation and India Inc has been demanding a cut in the rates to arrest declining economic growth, which is expected to moderate to 7% in 2011-12 from 8.5% a year ago.
The RBI-sponsored survey by professional forecasters has revised the growth projection for the current fiscal downward to 7%, which is lower than the central bank's projection of 7.6%.
"Growth is likely to turn weaker than earlier anticipated," the RBI said.
The RBI further said, "Even as the growth slowdown emerges as the major challenge, inflation risks persist, posing a challenge for monetary policy in achieving low and stable inflation with minimal sacrifice of growth."
Pushing for fast-tracking of economic reforms like reducing subsidy and implementing DTC and GST to arrest fiscal deficit, the RBI said its monetary actions were neutralised by the expansionary policies of the government.