RBI agrees with FM on GDP growth rate

Written by Banking Bureau | Mumbai, Jan 29 | Updated: Jan 30 2008, 04:42am hrs
Striking a similarity with what the finance minister, P Chidambaram, had recently said at the World Economic Forum in Davos, the RBI has also moderated the overall real GDP growth during the current fiscal at around 8.5% for policy purposes, but with a rider by assuming no further escalation in international crude prices and barring domestic or external shocks.

Overall, real GDP growth projection for 2007-08 at around 8.5 % is retained and hence the policy endeavour would be to contain inflation close to 5% in 2007-08 while conditioning expectations in the range of 4.0-4.5%, said the Reserve Bank of India (RBI) governor, YV Reddy, while announcing the third term review of RBIs annual monetary policy in Mumbai on Tuesday.

The idea is to reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment conducive to continuation of the growth momentum and orderly conditions in financial markets.

The policy endeavour would be to contain inflation close to 5.0% in 2007-08 while conditioning expectations in the range of 4.0-4.5 % so that an inflation rate of around 3% becomes a medium-term objective.

Moderation of money supply continues to be the second concern for the RBI for which it has given indication for appropriate responses. The rate of money supply has picked up coincident with a jump in the growth of reserve money, driven by the accretion to the Reserve Banks foreign exchange assets.

Moderating money supply in alignment with the indicative projections of 17.0-17.5 % set out in the annual policy statement of April 2007 may warrant appropriate responses, given the considerations for ensuring macroeconomic and financial stability going forward, says the document.

Real GDP growth moderated to 9.1% in the first half of 2007-08 from 9.9% in the first half of 2006-07. Foreign exchange reserves increased by $85.7 billion during the current financial year so far and stood at $284.9 billion on January 18, 2008.