India’s growth forecast pruned, but pace remains fast: Reddy

July 29th, 2008 - 5:46 pm ICT by IANS  

Mumbai, July 29 (IANS) The central bank may have lowered India’s economic growth projection for this fiscal to 8 percent, but the pace remains fast by all global standards, Reserve Bank of India (RBI) Governor Y.V. Reddy said here Tuesday. “We continue to remain the second-fastest growing economy in the world,” Reddy told a press conference at the central bank’s headquarters here after the quarterly review of the monetary policy for the current fiscal.

China remains the fastest growing economy with an average of 10 percent.

The review said global and domestic developments had led the central bank to cut the growth projection for India’s gross domestic product to 8 percent from 8-8.5 percent when the monetary policy for this fiscal was presented in April.

Earlier, the central bank governor had announced a 50 basis points increase in the short-term lending rates for commercial banks and required them to retain a higher amount of cash against their deposits - called the cash reserve ratio.

He, however, kept the long-term lending rate - called the reverse repo rate - and the benchmark bank rate unchanged at 6 percent each.

Speaking about inflation - the control of which has been the main focus of the quarterly review - Reddy said he expected the year-on-year increase in prices to remain around the current level of 11.89 percent for the next couple of months.

“At this juncture, a realistic policy endeavour would be to bring down inflation from the current level of about 11-12 percent to a level close to 7 percent by March 31, 2009,” Reddy said, adding he expected a moderation from January.

“It is expected that inflation would moderate from the current high levels in the months to come and noticeable decline in inflation can be expected towards the last quarter of 2008-09.”

The finance ministry said the increase in the cash reserve ratio and repo rate was a signal to the banks that credit growth must be moderated, since there was the need to moderate aggregate demand that was also fuelling inflation.

“If the requests for loans are carefully appraised and credit is allocated prudently, it is possible for commercial banks to ensure that adequate credit is available to the productive sectors,” the ministry said in a statement

“The government expects that the measures taken by RBI today (Tuesday), in continuation of the measures already taken over the last two months, will help in moderating and containing inflation.”

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