With the current improved assessment, the growth projection for GDP for 2009-10 by the Reserve Bank of India is placed at 6% with an upward bias.

This updated growth projection thus marks a slight improvement over the growth expectation of around 6.0% indicated in the Annual Policy Statement in April, 2009.

The overall macroeconomic scenario continues to be uncertain, although it is expected that the fiscal and monetary stimulus measures will supplement domestic demand in 2009-10. On balance, an uptrend in the growth momentum is unlikely before the middle of 2009-10, said D Subbarao, governor, RBI while announcing first quarter review of monetary policy 2009-10.

At the same time RBI has projected the wholesale price index (WPI) inflation for the end of March 2010 at around 5%, during the first quarter review of statement on monetary policy for the 2009-10?higher than the projection of 4% made during the annual policy statement of April 2009.

?As anticipated, the WPI inflation turned negative in June 2009 due to the statistical base effect and not because of any contraction in demand. However, the sharp decline in WPI inflation has not been commensurately matched by a similar decline in inflation expectations,? said Subbarao. He also added that within WPI, inflation of primary articles, particularly food articles, remains significantly positive.

The governor also noted that consumer price indices (CPI) have remained elevated, indeed also hardened in recent months.

?Global commodity prices have rebounded ahead of global recovery and the uncertain monsoon outlook could further accentuate food price inflation,? he said.

On balance, the risks to the current projections of real GDP growth and inflation for 2009-10 are on the upside, the RBI said.

The comfortable levels of foodgrains stocks should help mitigate the risks in the event of price pressures from the supply side. The RBI said they will closely monitor the level of liquidity so as to contain inflationary expectations if supply side price pressures were to rise.

The WPI inflation decelerated from a peak of 12.91% on 2 August, 2008 to 0.84% at the end of March 2009, thereby turning negative in June 2009. The increased volatility in WPI inflation needs to be seen in the context of the behaviour of the global commodity prices, the RBI noted. Reflecting the sharp increase in oil and metal prices, WPI inflation had risen to double digits in June 2008 and remained elevated till October 2008 tracking the firm global commodity prices. As the global commodity prices moderated from their peak levels, domestic prices also adjusted, setting off a converse movement in WPI inflation.

?The evolution of WPI inflation so far has been along the lines anticipated in the annual policy statement of April 2009. The currently observed negative WPI inflation largely reflects the statistical effect of the high base of last year and should not be interpreted as structural deflation arising from demand contraction,? the RBI said.

Also in a meeting with the governor with bankers, held on Tuesday morning, banks said that they were concerned that their liability structure which is getting shorter with the reduction in the term structure of deposits, while the asset structure is getting elongated on account of the increasing share of long-term loans, particularly infrastructure. Several banks also indicated that the share of current and savings (CASA) deposits has been declining, which would put pressure on their net interest margins (NIM). As regards credit quality, banks were of the view that non-performing assets (NPAs) are expected to increase, particularly, in the unsecured segments, although they will remain manageable. Going forward, public sector banks emphasised the need for raising capital as risk-weighted assets expand in their asset portfolio.