Duvvuri Subbarao, governor, Reserve Bank of India (RBI), while unveiling his mid-term review of the annual policy for 20089-09 has revised GDP growth forecast to a range of 7.5%-8% for the year, while sticking to the Central Bank’s earlier projection of inflation of 7% for the same period.
Sherman Chan, an economist with Moody’s Economy said RBI mildly adjusted its GDP growth forecast for fiscal 2008-2009 from 8% to 7.5%-8%. This is an optimistic projection, showing the Central Bank’s confidence. Moody?s Economy.com expects the Indian economy to record a less upbeat but still-stunning?amid a sharp global downturn?growth rate of around 7% for the current fiscal year.
It will be RBI?s endeavour to bring down inflation to a tolerable level of below 5% at the earliest, while aiming for convergence with global average inflation of around 3% over the medium term.
Domestically-imported inflation pressures have been keeping headline inflation at elevated levels, with considerable uncertainty as to where it will peak and when. Aggregate supply conditions in the Indian economy have shown resilience in the second quarter of 2008-09 in the face of a deteriorating global macroeconomic and financial environment. There are, however, growing indications that the underlying economic cycle is turning with global economic developments, and domestic economic activity is straddling a point of inflexion, said RBI.
The aggregate demand conditions continue to be mainly investment-driven, despite some slackening which set in during the first quarter of 2008-09, appears to have become broad-based.
However, earlier, the (RBI), in its macroeconomic and monetary developments, released on Thursday, has indicated the possibility of a soft rate regime in the near future to tackle the ongoing economic slowdown, even as inflation has started declining.
The inflation figure announced on Thursday fell to 11.07 % on cheaper food and crude but the government said it was still high, even as RBI is expected to increase money supply in the system.
Four straight weeks of slow growth in prices have given scope to RBI to cut benchmark rates further, analysts said.
Tushar Poddar, vice president – Asia Economics Research at Goldman Sachs, ?We continue to think that growth and financial stability concerns should decisively outweigh inflation concerns. The large fall in commodity prices, slowdown in demand, and the extraordinary fall in asset prices suggests that inflation will slow sharply, and fall under 6.5% by March 2009. Lending will increasingly become a problem for banks. We also expect the pressures for depreciation on the rupee to continue in the short term.?
Non-food credit has posted a growth of 29% on a year-on-year basis as of October 10, 2008, which is well beyond RBI?s projected level of 20% for 2008-09. RBI has said banks should continue to lend for productive purposes and in particular permit withdrawals of sanctioned limits, guided as always by their commercial judgment.