Thaindian News

Mumbai, Jan 23 (IANS) The Reserve Bank of India Monday sounded worried about growth prospects of the economy this fiscal and said gross domestic product expansion could be lower than the 7.6 percent it anticipated earlier.

In its macroeconomic and monetary development document, a precursor to the third quarter review of the monetary policy that will be unveiled Tuesday, the apex bank also talked about upward risks to inflation.

“Upside risks to inflation persist from insufficient supply responses, exchange rate pass-through, suppressed inflation and an expansionary fiscal stance,” it said.

The central bank said global and domestic conditions could result in growth slowing down more than expected. “Developments on both the global and domestic fronts have not been favourable and the growth is likely to turn weaker than earlier anticipated.”

The bank, however, said any reduction in rates would depend on how the inflation situation progressed.

“Monetary space to support growth exists, but pace of action will depend on evolving growth-inflation dynamics.”

The RBI’s focus has shifted towards fuelling growth now, since inflation has started showing signs of decline. Overall inflation, based on the wholesale price index (WPI), was down to a two-year low of 7.47 percent in December, mainly owing to lower prices of food items.

In the document, the RBI was cautiously optimistic about inflation.

“While in the short run moderating inflation will provide some space for monetary policy to address growth concerns, in the absence of structural measures to address a range of supply bottlenecks, this will be, at best, temporary respite,” the bank said.

“Inflation is moderating led by sharp decline in food inflation and is broadly in line with the 7 per cent projection for March 2012,” it added.

In its last review in December, the RBI had decided to pause its monetary tightening measures and said it might look at easing rates in the future depending on moderation in inflation.

The central bank, however, would not want to hold off any lowering in interest rate as it would not want to impede industrial growth. Cumulative factory output in the April-November period has been sluggish at 3.8 percent as against a growth of 8.4 percent in the like period of 2010.