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Mumbai, Oct.26 Managing the trade-off between supporting growth and reining in inflation expectations poses a complex challenge, says the Reserve Bank of India even as its latest survey of professional forecasters has brought down India’s growth rate for FY2010 to 6 per cent as against 6.5 per cent reported in the earlier survey.

The central bank unveiled these findings on the eve of the second quarter review of the Monetary Policy for 2009-10.

This downward revision in growth outlook is due to the expected decline in agricultural output on account of poor monsoon, according to the RBI’s second quarter review of the macroeconomic and monetary developments, released on Monday. “Lead information in terms of growth in non-oil imports and demand for credit in the second quarter of 2009-10 does not point to any major recovery in demand from the private sector.

The overall economic outlook is, therefore, a mixture of upside prospects of recovery and downside risks,” the review said.

Underscoring the RBI’s dilemma, the review says that while premature reversal of the monetary policy stance entails the risk of stifling recovery, persistence of accommodative stance could adversely impact inflation expectations.

The moderation in the economic activity is underscored by the fact that the non-food bank credit grew by only 11.2 per cent year-on-year as on October 9, 2009, as against 29.4 per cent a year ago.

Amplifying its concerns on the inflation front, the review said inflationary pressures have increased since the presentation of the first quarter review. High consumer price index (CPI) is a major risk to inclusive growth, since it could lead to erosion in real income of segments of the population for which the indices have been prepared.

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