RBI indicates status quo on rates
The Financial Express, April 21, 2009, Page 1
Economy Bureau, Mumbai
The Reserve Bank of India on Monday indicated that although growth prospects remained grim, it might prefer not to cut policy rates further at this time. It said earlier rate cuts and higher government spending since October had already made a positive impact on economic growth.
“The fiscal stimulus packages of the government and monetary easing by RBI will arrest the moderation in growth and revive consumption and investment demand,” the central bank stated in its Macroeconomic & Monetary Developments 2008-09 review, which was released on the eve of its annual credit and monetary policy announcement.
Looking back over the last fiscal, the economy probably expanded 6.6%, less than the 6.8% forecast last December, according to the median compiled by the RBI from the forecasts of 14 agencies, including the World Bank and Citigroup Inc. The seventh round of the professional forecasters survey was conducted last month.
RBI said it still had the option to reduce rates to support growth as it expects inflation to “remain at a low level through the greater part of 2009-10” because of higher farm output and low international commodity prices. It also said commercial banks had sufficient room to lower borrowing costs further.
RBI pointed out that major drivers of growth in India are moderating and various surveys of economic activity point towards less-than-optimistic sentiment for the economy in coming months.
According to its outlook of manufacturing companies in the private sector, business expectations indices based on the assessment for January-March 2009 and expectations for April-June 2009 declined sharply by 20.7% and 13.9%, respectively, over the previous quarters. A similar trend was observed in these indices when compared with the corresponding quarters of the previous year.
RBI said consumer price inflation remained high, with recent evidence of only very modest moderation, adding that the transmission process of lower inflation at the wholesale level to inflation at the retail level had emerged an important issue in the conduct of monetary policy.
“Various measures of consumer price inflation, though starting to decline, still remained high in the range of 9.6-10.8% during January-February 2009, compared with 5.2-6.4% in February 2008,” it said.
The central bank said weather forecasts indicated that prospects for the farm sector remained bright, and this would continue to support rural demand. Satisfactory agricultural output, along with low international commodity prices, would help keep inflationary pressures low for most of 2009-10, it said.
The Financial Express, April 21, 2009, Page 1
Economy Bureau, Mumbai
The Reserve Bank of India on Monday indicated that although growth prospects remained grim, it might prefer not to cut policy rates further at this time. It said earlier rate cuts and higher government spending since October had already made a positive impact on economic growth.
“The fiscal stimulus packages of the government and monetary easing by RBI will arrest the moderation in growth and revive consumption and investment demand,” the central bank stated in its Macroeconomic & Monetary Developments 2008-09 review, which was released on the eve of its annual credit and monetary policy announcement.
Looking back over the last fiscal, the economy probably expanded 6.6%, less than the 6.8% forecast last December, according to the median compiled by the RBI from the forecasts of 14 agencies, including the World Bank and Citigroup Inc. The seventh round of the professional forecasters survey was conducted last month.
RBI said it still had the option to reduce rates to support growth as it expects inflation to “remain at a low level through the greater part of 2009-10” because of higher farm output and low international commodity prices. It also said commercial banks had sufficient room to lower borrowing costs further.
RBI pointed out that major drivers of growth in India are moderating and various surveys of economic activity point towards less-than-optimistic sentiment for the economy in coming months.
According to its outlook of manufacturing companies in the private sector, business expectations indices based on the assessment for January-March 2009 and expectations for April-June 2009 declined sharply by 20.7% and 13.9%, respectively, over the previous quarters. A similar trend was observed in these indices when compared with the corresponding quarters of the previous year.
RBI said consumer price inflation remained high, with recent evidence of only very modest moderation, adding that the transmission process of lower inflation at the wholesale level to inflation at the retail level had emerged an important issue in the conduct of monetary policy.
“Various measures of consumer price inflation, though starting to decline, still remained high in the range of 9.6-10.8% during January-February 2009, compared with 5.2-6.4% in February 2008,” it said.
The central bank said weather forecasts indicated that prospects for the farm sector remained bright, and this would continue to support rural demand. Satisfactory agricultural output, along with low international commodity prices, would help keep inflationary pressures low for most of 2009-10, it said.
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