RBI monetary policy review: Cbank hints at status quo as focus on Indian rupee

Jul 29 2013, 19:17 IST
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'Amplifying macro-financial risks warrant cautious monetary policy stance.' (AP) 'Amplifying macro-financial risks warrant cautious monetary policy stance.' (AP)
SummaryAmplifying macro-financial risks warrant cautious monetary policy stance: RBI

pressure on public finances and erodes domestic savings, which in turn widen CAD.

The CAD will improve only on structural reforms, it said, adding that CAD is expected to come lower in FY14 than the 4.8 per cent last fiscal. However, the 3.8 per cent achieved in the last quarter of FY13 is likely to be breached in the June quarter, it said.

However, RBI said that even though the number may come in lower, the slowdown in the investor interest, which has resulted in outflows of USD 12 billion since last week of May alone, will mean financing the CAD will be a difficult task.

On the growth front, RBI raised concern saying that the recovery is likely to be slower.

"The pace of recovery is likely to be slow in view of the structural constraints," RBI said, adding that the recovery will come in the latter part of the fiscal on the back of a good monsoon.

The professional forecasters have also downwardly revised their FY14 GDP growth expectations to 5.7 per cent - at par with RBI's estimate given in the annual policy¿from the earlier 6 per cent, the survey finding said.

Noting that the tax mop up has been tepid so far, the report expressed concern over likely broadening of fiscal deficit and underlined the need for passing on the fuel and energy price increases to end consumers.

"Fiscal deficit could widen if the exchange rate pass through is constrained by holding back administered price revisions (of fuel)," the report said.

Additionally, it recommended a shift in expenditure from current to capital expenditure which can result in "crowding-in" private investment.

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