Money & Banking

RBI cites difficulties in interest rate cut

PTI Mumbai | Updated on January 28, 2013 Published on January 28, 2013

RBI today spoke of difficulties in effecting an interest rate cut as it kept its option open in its quarterly monetary policy tomorrow citing high inflation and widening current account deficit as big constraints inhibiting it.

“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”, the RBI said in its report on Macroeconomic and Monetary Developments issued on the eve of policy.

The central bank, however, appeared to keep its options open when it said that when the government’s recent economic reforms measures “show up fully and definitely” it would be possible for the monetary policy to increasingly focus on revival of growth.

The RBI’s pre-policy review statements comes in the midst of long standing expectations from the government and the industry of an interest rate cut to boost sagging growth.

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 materialises, 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.”

Published on January 28, 2013
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