RBI paints grim picture ahead of policy review (Second Lead)

April 20th, 2009 - 9:02 pm ICT by IANS  

Mumbai, April 20 (IANS) The Reserve Bank of India (RBI) has painted a bleak forecast for the economy in its macro-economic report released Monday, saying business expectations for the coming months were “less than optimistic” and that economic growth would continue to be moderate on account of the global financial crisis.
“Reflecting global developments and their impact on the Indian economy, as well as domestic cyclical factors, the various surveys of economic activity point towards prevalence of less than optimistic sentiment for the outlook of the Indian economy in the coming months,” RBI said in the report.

“The Professional Forecasters’ Survey conducted by the Reserve Bank in December 2008 suggested moderation in economic activity in 2008-09 and 2009-10,” it added in the report titled “Macro-economic and monetary developments in 2008-09,” which is released a day before the central bank comes up with its annual policy review.

“Business expectations among manufacturing companies in the private sector will dip sharply by 13.9 percent for the period April-June 2009,” the RBI said. This is slightly better than the 20.7 percent fall business expectations took during January-March 2009.

RBI also said that though the global economic crisis had resulted in slower growth for India, the government stimulus packages would help arrest drop in demand.

The prospects for higher foodgrain production also remained favourable as area sown under rabi crops had increased and in the wake of a near normal monsoon forecast.

The report, which is a report card of sorts on the Indian economy, laid out the following points:

* Total foodgrain production during 2008-09 was down at 227.9 million tonnes, compared to 230.8 million tonnes during 2007-08

* The merchandise trade deficit further widened to $113.8 billion during April-February 2008-09, which was $82.2 billion a year ago

* Slowing of economic activity in 2008-09 may affect both saving and investment rates for the year

* Foreign direct investment bucked the trend with inflows of $31.7 billion in April 2008-February 2009

* Foreign exchange reserves dipped by $56.7 billion from March-end 2008 and stood at $253 billion on April 10 this year

* Liquidity in the system grew 18.4 percent, compared with 21.2 percent a year ago

* Bank deposits grew 18.4 percent this fiscal, compared with 21.2 percent in the year-ago period

* Bank lending rates have begun to exhibit some moderation

* All markets functioned normally, with occasional volatility for short periods

The central bank will present the annual review of its monetary policy here Tuesday, with quite a few stakeholders opining that RBI would leave key rates untouched and maintain an overall status quo on the measures.

RBI Governor D. Subbarao will undertake the review with chief executives of commercial banks that comes against the backdrop of a sharp fall in India’s economic growth, due mainly to lacklustre performance by industry in the wake of the global meltdown.

“We think the RBI is unlikely to cut the reverse repo rate, which is currently the effective short-term policy rate,” Goldman Sachs earlier said in a report, ahead of the policy review.

“However, the RBI may cap the amount that banks can put in the reverse repo window, currently running at historic highs, to encourage more lending.”

Giving the reasons, the consultancy had said not only was there excess liquidity in the system, but commercial banks were also yet to pass on the real benefits of the previous rate cuts to industry or consumers.

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