RBI hints at rate hike, growth below 9 percent
May 2nd, 2011 - 7:33 pm ICT by IANSMumbai, May 2 (IANS) The Reserve Bank of India, the country’s central bank, Monday hinted at another interest rate hike on May 3 as inflation has remained persistently high and spread from food to other items, while cautioning that growth may not be as high as 9 percent this fiscal.
“Persistence of inflation at elevated levels and the generalisation of inflationary pressures to manufacturing products continue to be the major policy concern,” said the Reserve Bank of India (RBI) in the macro-economic and monetary developments in 2010-11.
The country’s central bank said the biggest risk to growth and one that could spur inflation further were high oil prices.
“In this scenario, while growth risks remain, persistence of high inflation warrants continuation of anti-inflationary monetary stance to sustain the growth momentum over the medium term,” it added in the document which acts as a precursor to the annual monetary policy statement.
Inflation has remained stubbornly above comfort levels, even after the RBI hiked rates eight times in the past 15 months. Latest data showed that food inflation rose for the second consecutive week to 8.76 percent for the week ended April 16.
The annual rate of inflation too had shown an increase, rising to 8.98 percent in March from 8.31 percent the month before, way above the target of 8 percent set by the RBI.
The RBI also said that a survey conducted by professional forecasters showed that economic growth in the current fiscal could be lower than the 9 percent estimated by the government, because of a slowdown in industrial output and moderation in the agricultural sector.
“The growth outlook for 2011-12 looks positive though with some downside bias. The available projections by various agencies give a mixed picture with some projecting a growth rate of 9 percent while others within a range of 8 to 8.5 percent, suggesting a moderation in the growth process.”
“High inflation now poses risk to faster growth in future. Experience suggests that more rapid growth phases have been typically accompanied by low inflation,” it said.
Among other dangers that could impact growth was monsoon playing truant, resulting in higher food inflation and its spill-over to the manufacturing sector.
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