MUMBAI--India's central bank Thursday said it sees "very limited" room to ease monetary policy further, sounding a cautious note a day before it is widely expected to cut rates to help boost economic growth.
"High consumer-price inflation along with the current-account deficit well above sustainable levels limits the space for monetary policy to support growth," the Reserve Bank of India said in its annual review of macroeconomic and monetary developments.
The RBI releases the review a day before its rate-setting meeting. The comments are bearish for a market which is expecting the central bank to further loosen its monetary policy to help boost an economy which is growing at its slowest pace in a decade.
The RBI has already reduced its overnight lending rate twice in 2013 by a quarter percentage point each even as the government and businesses put pressure on it for further cuts. As many as 14 of 15 economists in a recent poll expect the RBI to cut its policy lending rate by another quarter percentage point Friday.
The remaining economist predicts no change. Previously too, the RBI had warned that it had limited room to ease rates further as inflation risks remained high.
But over the past month, the prices of crude oil and gold--India's top two imported commodities by value--have fallen substantially, raising hopes the RBI will act aggressively this time to revive growth.
Soaring gold imports in recent years have contributed to India's wide current-account deficit, which surged to a record 6.7% of gross domestic product in the October-December quarter, the latest period for which the figure is available.
According to the RBI, cutting rates could boost the demand for imports and add pressure on the current-account deficit.
The central bank blames high government spending on fuel, fertilizer and food subsidies for stoking consumption and diluting its efforts to control inflation by curbing demand. The government has addressed some of those concerns.
Since September, it has allowed more foreign direct investment in sectors such as retail and aviation, and has set out a five-year plan to cut its fiscal deficit.
It has also allowed small but regular increases in diesel prices to reduce spending on fuel subsidies, and set up a ministerial panel to speed up clearances for large infrastructure projects. The RBI Thursday acknowledged the government's efforts, but said that progress remains slow.
"Sustained efforts by the government to expediting environmental clearances and land acquisition are needed to turnaround growth in core industries," the RBI said.
The central bank said it expects a modest economic recovery in the current fiscal year that started April 1, the pace of which depends on the government's steps to boost growth.
Wholesale prices have been increasing at a slower pace over the past few months--the wholesale price index is India's main inflation gauge--strengthening hopes that this will give the RBI more room for cutting rates. In March, wholesale inflation slowed to below 6.0% for the first time in 40 months.
The RBI, however, pointed out on Thursday that high consumer inflation, driven by food prices, remains a significant constraint to monetary easing.
nasdaq.com
"High consumer-price inflation along with the current-account deficit well above sustainable levels limits the space for monetary policy to support growth," the Reserve Bank of India said in its annual review of macroeconomic and monetary developments.
The RBI releases the review a day before its rate-setting meeting. The comments are bearish for a market which is expecting the central bank to further loosen its monetary policy to help boost an economy which is growing at its slowest pace in a decade.
The RBI has already reduced its overnight lending rate twice in 2013 by a quarter percentage point each even as the government and businesses put pressure on it for further cuts. As many as 14 of 15 economists in a recent poll expect the RBI to cut its policy lending rate by another quarter percentage point Friday.
The remaining economist predicts no change. Previously too, the RBI had warned that it had limited room to ease rates further as inflation risks remained high.
But over the past month, the prices of crude oil and gold--India's top two imported commodities by value--have fallen substantially, raising hopes the RBI will act aggressively this time to revive growth.
Soaring gold imports in recent years have contributed to India's wide current-account deficit, which surged to a record 6.7% of gross domestic product in the October-December quarter, the latest period for which the figure is available.
According to the RBI, cutting rates could boost the demand for imports and add pressure on the current-account deficit.
The central bank blames high government spending on fuel, fertilizer and food subsidies for stoking consumption and diluting its efforts to control inflation by curbing demand. The government has addressed some of those concerns.
Since September, it has allowed more foreign direct investment in sectors such as retail and aviation, and has set out a five-year plan to cut its fiscal deficit.
It has also allowed small but regular increases in diesel prices to reduce spending on fuel subsidies, and set up a ministerial panel to speed up clearances for large infrastructure projects. The RBI Thursday acknowledged the government's efforts, but said that progress remains slow.
"Sustained efforts by the government to expediting environmental clearances and land acquisition are needed to turnaround growth in core industries," the RBI said.
The central bank said it expects a modest economic recovery in the current fiscal year that started April 1, the pace of which depends on the government's steps to boost growth.
Wholesale prices have been increasing at a slower pace over the past few months--the wholesale price index is India's main inflation gauge--strengthening hopes that this will give the RBI more room for cutting rates. In March, wholesale inflation slowed to below 6.0% for the first time in 40 months.
The RBI, however, pointed out on Thursday that high consumer inflation, driven by food prices, remains a significant constraint to monetary easing.
nasdaq.com
No comments:
Post a Comment