RBI may peg 2013-14 growth target at 6%, say economists

The Reserve Bank of India will likely project a modest 6% GDP growth and a slightly higher 6.25% wholesale price index inflation for 2013-14 in its annual policy Statement due May 3, according to most economists.

Recent fall in prices of most commodities following gold’s tumble notwithstanding, RBI may expect WPI inflation to be above 6% by end of March 2014.

?One doesn?t know whether this fall in commodity prices will sustain. RBI would continue to be cautious and highlight the factors like CPI inflation and the current account deficit,? said Abheek Barua, chief economist at HDFC Bank.

Economists say the headline inflation could fall again in June-September period by a magnitude similar to that of March. WPI inflation fell to a to 40-month low of 5.96% in March. However, the inflation rate could pick up thereafter.

?The sub-6% inflation rate, you could see in the period of June and September,? said Barua.

?Recent softening in commodity prices and weak aggregate demand will undoubtedly have a positive effect on WPI inflation,? said Rajeev Malik, a senior economist at CLSA. Malik, however, warned the need to adjust several administrative prices will limit the sustainability of the improvement in inflation.

Economist said RBI will continue to harp on the potential risk to global commodity prices from the abundant liquidity available due to loose monetary policy of the US Federal Reserve and the Bank of Japan.

?Had BoJ not announced its asset-buying programme, as Fed is expected to end its loose policy in 2013, there would have been less of a risk,? said Barua.

The Bank of Japan has announced it would spend 60 trillion yen over next two years by buying bonds to prop up the economy.

?RBI may hedge its position by pointing out the stickiness in CPI inflation,? said Anubhuti Sahay, economist at Standard Chartered Bank.

CPI inflation continues to remain near 10% even as the WPI number is easing.

Growing cautiously Economists say given that the manufacturing sector growth has not been more than 1% for most part of FY13, a dramatic improvement in 2013-14 is unlikely. GDP growth, therefore, could improve only by a small margin.

?No miraculous recovery is going to be seen in growth,? said Rupa Rege Nitsure, chief economist at Bank of Baroda. Industrial output grew by 0.6% in February.

Nevertheless, RBI is likely to cut its repo rate by 25 basis points at its policy given the recent fall in inflation, economists.