MUMBAI: Citing high inflation and widening current account deficit (CAD) as big constraints, Reserve Bank on Monday said there is limited scope for monetary actions like interest rate cut to boost growth in the third quarter policy to be announced on Tuesday.
"Given the preponderance of non-monetary factors behind the current slowdown in an environment where risks from high inflation, current account and fiscal deficits still remain, the scope for supportive monetary policy action is constrained", RBI said in its report on macroeconomic and monetary developments issued on the eve of policy.
The central bank, however, said that with the government executing economic reforms measures, it would be possible for the monetary policy to increasingly focus on revival of growth.
Meanwhile, the professional forecasters sponsored by the RBI has lowered the growth projection for the current fiscal to 5.5 per cent from 5.6 per cent projected earlier. They have also cut the growth forecast for the next financial year to 6.5 per cent from 6.6 per cent.
As regards inflation, RBI said it was likely to moderate below its projection of 7.5 per cent by March-end. However, it added, "suppressed inflation continues to pose a significant risk to the inflation in 2013-14. As some of the risks materializes, inflation path may turn stick."
Referring to recent reforms initiatives, it said, "(they) have reduced immediate risks, but there is a long road ahead to bring about a sustainable turnaround for the Indian economy. Business sentiments remain weak despite reform initiatives and consumer confidence is edging down.
More reforms needed
The Reserve Bank of India said recent reforms have reduced the immediate risks for the economy but emphasized on the need for more measures to restore investor confidence.
Flagging concerns about fiscal and external imbalances in the economy, the apex bank said that more reforms are required, especially in road and power sectors, to remove the investment bottlenecks.
"The fresh round of reforms that were initiated in September 2012, after a hiatus, has reduced the immediate risks facing the Indian economy ...
"On the whole it appears that the reform measures taken so far have not decisively lifted business sentiments and further action may be needed to restore confidence," RBI said in its third quarter review of Macroeconomic and Monetary Development.
The monetary policy, RBI said, could focus more on boosting growth after the reform actions get executed.
"While government has embarked on a fiscal adjustment path, staying on this course over the medium-term is necessary for providing sufficient space for monetary policy to stimulate growth," RBI said.
In the past couple of months the government has taken a host of reforms initiative including opening the multi-brand retail chain to FDI, and also the Cabinet has approved hiking foreign investment limits in the insurance and pension sectors.
Earlier this month, the government also allowed partial deregulation of diesel prices, besides limiting the number of subsidized LPG cylinders to nine per family a year.
"Fiscal risks have somewhat moderated in 2012-13, but a sustained commitment to fiscal consolidation is needed to generate monetary space," RBI said.
Source:http://timesofindia.indiatimes.com/business/india-business/Business-sentiments-remain-weak-RBI-says/articleshow/18223617.cms
"Given the preponderance of non-monetary factors behind the current slowdown in an environment where risks from high inflation, current account and fiscal deficits still remain, the scope for supportive monetary policy action is constrained", RBI said in its report on macroeconomic and monetary developments issued on the eve of policy.
The central bank, however, said that with the government executing economic reforms measures, it would be possible for the monetary policy to increasingly focus on revival of growth.
Meanwhile, the professional forecasters sponsored by the RBI has lowered the growth projection for the current fiscal to 5.5 per cent from 5.6 per cent projected earlier. They have also cut the growth forecast for the next financial year to 6.5 per cent from 6.6 per cent.
As regards inflation, RBI said it was likely to moderate below its projection of 7.5 per cent by March-end. However, it added, "suppressed inflation continues to pose a significant risk to the inflation in 2013-14. As some of the risks materializes, inflation path may turn stick."
Referring to recent reforms initiatives, it said, "(they) have reduced immediate risks, but there is a long road ahead to bring about a sustainable turnaround for the Indian economy. Business sentiments remain weak despite reform initiatives and consumer confidence is edging down.
More reforms needed
The Reserve Bank of India said recent reforms have reduced the immediate risks for the economy but emphasized on the need for more measures to restore investor confidence.
Flagging concerns about fiscal and external imbalances in the economy, the apex bank said that more reforms are required, especially in road and power sectors, to remove the investment bottlenecks.
"The fresh round of reforms that were initiated in September 2012, after a hiatus, has reduced the immediate risks facing the Indian economy ...
"On the whole it appears that the reform measures taken so far have not decisively lifted business sentiments and further action may be needed to restore confidence," RBI said in its third quarter review of Macroeconomic and Monetary Development.
The monetary policy, RBI said, could focus more on boosting growth after the reform actions get executed.
"While government has embarked on a fiscal adjustment path, staying on this course over the medium-term is necessary for providing sufficient space for monetary policy to stimulate growth," RBI said.
In the past couple of months the government has taken a host of reforms initiative including opening the multi-brand retail chain to FDI, and also the Cabinet has approved hiking foreign investment limits in the insurance and pension sectors.
Earlier this month, the government also allowed partial deregulation of diesel prices, besides limiting the number of subsidized LPG cylinders to nine per family a year.
"Fiscal risks have somewhat moderated in 2012-13, but a sustained commitment to fiscal consolidation is needed to generate monetary space," RBI said.
Source:http://timesofindia.indiatimes.com/business/india-business/Business-sentiments-remain-weak-RBI-says/articleshow/18223617.cms
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