The Hindu Business Line : Economists see RBI staying hawkish

Thiruvananthapuram April 18 Consensus view among economists and observers is that the Reserve Bank of India (RBI) will stick to its `tight stance' with a hawkish view of interest rates when reviewing the annual monetary policy next week.

"Thus far, the interest rate hikes have not impacted growth. A part of the reason for that is that the tight monetary policy impacts growth with a lag. Until the signs of growth moderation are visible, we should expect the RBI to continue with the tight stance," said Mr D.K. Joshi, Director and Principal Economist, Crisil.

"We expect GDP growth to moderate to 7.9 to 8.4 per cent in 2007-08. Once the signs of cooling off of the economy are visible, the RBI is expected to move to a neutral stance, which should happen in the course of the current fiscal year (2007-08)," Mr Joshi added.

Monetary stance

The monetary stance would likely remain on the side of tightening during the quarter with any specific policy action linked to the growth in money supply and its deployment, reasoned Mr Ananda Bhoumik, Senior Director, Fitch Ratings India.

Foreign inflows and domestic credit growth remain strong even as the inflation rate is expected to ease due to the base effect. Supply-side constrains are, however, unlike to recede during the next 12 months and the RBI would likely remain focused on managing consumption.

While there appears to be early signs of a slowdown in growth of consumer loans, the central bank may prefer to see a clear trend, including in real estate prices, before waving its flag on the `overheating' issue.

Dr Nagesh Kumar, Director-General, RIS (Research and Information System for Developing Countries), said that his hunch was that the RBI would go in for another round of tightening, which would affect the growth momentum.

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