‘US debt crisis may mellow RBI's stance on inflation'

It will be some time before the real picture emerges on the sovereign debt crisis in the US, but for now risks for India look balanced with ‘positives', according to Mr B.R. Bhat, General Manager of Corporation Bank.

He was delivering a lecture here on ‘Economic turmoil in the USA and its implication on Indian economy', jointly organised by the Mangalore Management Association, SDM College of Business Management and Bharathiya Vidya Bhavan on Friday evening.

Referring to the impact of the crisis on GDP growth, he said the ensuing crisis is less of a shock since no one was betting on global growth. Barring any more untoward global economic occurrences, the impact on the Indian economy would be largely neutral to the US downgrade, he said.

On inflation, he said the commodity prices, barring precious metals like gold and silver, have been under pressure since the downgrade. This could bode well for India's inflation which has been dangerously close to a double-digit figure for almost a year now. Already there is talk of cutting fuel prices as crude oil edges lower, he said.

Highlighting the impact of the US crisis on interest rates, he said: “With an expected decline in inflation over the short to medium term, we can reasonably expect the RBI to slow down the interest-rate hike cycle, more so since there are already signs of a slowing in industrial growth.”

Mr Bhat said a slowdown in interest-rate hike augurs well for credit growth.

Stating that the US economy is one of the largest markets for Indian goods and services, he said a continued decline of the US economy does not bode well for India.

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