It seems RBI is considering some easing in its policy review, as lauding the government’s efforts the central bank in its review of macroeconomic and monetary developments for the July-September quarter released a day ahead of the second quarter review of the monetary policy, said ‘as macro risks from inflation and twin deficits recede further, that could yield space down the line for monetary policy to respond more effectively to growth concerns.’ Though, it also said that speedy implementation of recent policy measures announced by the government and sustained reforms are important for turning the economy around.
Earlier, Finance Minister P Chidambaram pledged to nearly halve the fiscal deficit to three per cent of GDP by 2016-17 and hinted the central bank should take the cue, as the apex bank has previously called for fiscal consolidation measures from the government. The RBI’s review, however said that fiscal slippage is likely in 2012-13 despite recent measures by the government. Food, fertiliser and petroleum subsidies remain high and are likely to overshoot Centre’s budget estimates.
The report pointed out that the potential growth rate of the Indian economy that peaked around the middle of 2007-08, has since continued its downward slide into Q1 of 2012-13 to around 7.0 per cent and further said that global growth prospects, both in advanced economies (AEs) and in emerging and developing economies (EDEs) too have weakened.
It also talked about inflation which is still much above its comfort zone and was quick to point that inflation has stayed sticky around 7.5 per cent despite the growth slowdown and has emerged as a concern. Consumer price inflation continues to be above the inflation in wholesale price index. It further said that while the near-term inflation risks are on the upside, inflation is expected to moderate from Q4 of 2012-13. However, improved supply responses and moderation of wage inflation is vital for bringing down inflation to comfort level.
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