RBI indicates softening of hawkish monetary stance
The Reserve Bank of India (RBI) on Monday softened its stance on the tight monetary policy by indicating that it’s ready to support growth and ease interest rates if “macro-risks from inflation and twin deficits recede further”.
Simultaneously, the RBI maintained that speedy implementation of recent policy measures announced by the government and sustained reforms are important for turning the economy around.
“Monetary policy needs to be cautious in the interim, focussing on inflation while using the available space to support growth to the degree it can,” the RBI said in its ‘Macroeconomic and Monetary Developments Second Quarter Review 2012-13’.
“Lowering inflation is important from consumer welfare and equity considerations, as also for sustainable growth over the medium-term. If risks to macro-economy from inflation and twin deficit recede further, that could yield space down the line for monetary policy to respond to growth concerns,” it said on the eve of the half-yearly monetary policy review.
The RBI, which front-loaded a 50 basis points (bps) cut in repo rate in the annual policy review, has kept the rate unchanged in the last six months. It cut the cash reserve ratio by 25 bps in the mid-quarter review in September.
Growth slowdown is also corroborated by the results of the 21st round of the ‘Survey of Professional Forecasters’ conducted by the Reserve Bank. The median growth forecast for 2012-13 has been revised downward to 5.7 per cent from the earlier 6.5 per cent, while that for average WPI inflation has been cut to 7.7 per
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