Reserve Bank could curb lending further, says Moody’s armJuly 11th, 2008 - 6:45 pm ICT by IANS
New Delhi, July 11 (IANS) If the wholesale price growth continues to accelerate in the next few weeks, the central Reserve Bank of India (RBI) could further curb lending, which has been a major source of inflation, global research agency Moody’s Economy.com said Friday. Wholesale prices jumped 11.9 percent year-on-year in the week ended June 28, showing no signs of cooling despite the monetary tightening by the RBI during the month.
“The higher interest rates and reserve requirements will take time to slow demand-driven inflation,” Moody’s Economy.com said.
Moody’s Economy.com, a subsidiary of Moody’s Corp., said the tight monetary policy settings will pull back growth this year.
Higher interest rates will also weigh on household budgets, especially following the rapid credit growth in the past couple of years.
But last month’s interest rate hikes will strengthen the currency and weaken export competitiveness. The retreat of the rupee in the March quarter likely helped enhance the appeal of Indian products in the global market, keeping export performance healthy.
According to Moody’s Economy.com, India’s GDP growth will moderate this year amid slowing exports and softening domestic demand and will come in just under eight percent.
“India’s industrial output for May was disappointing. The sharp deceleration in production growth raises concerns about the manufacturing outlook for the second half of 2008,” said Sherman Chan, an economist with Moody’s Economy.com.
“As the global financial market turmoil seems far from over, and the giant US economy is not showing signs of recovery, India’s export outlook has become increasingly gloomy. Slowing outbound shipments will weigh on production orders”, Chan added.
Inflation reached 11.89 percent for the weekend June 28, while industrial growth slowed down to 3.8 percent.
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