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Lower inflation and fiscal consolidation needed for monetary easing: RBI
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Lower inflation and fiscal consolidation needed for monetary easing: RBI

Jan 28 2013, 9:32am CST | by

Mumbai/New Delhi, Jan 28 (IANS) The Reserve Bank of India Monday said inflation remains above the comfort zone and fiscal and current account deficits are still high, moderating expectations of an interest rate cut.

Mumbai/New Delhi, Jan 28 — The Reserve Bank of India Monday said inflation remains above the comfort zone and fiscal and current account deficits are still high, moderating expectations of an...

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1 year ago

Lower inflation and fiscal consolidation needed for monetary easing: RBI

Jan 28 2013, 9:32am CST | by

Mumbai/New Delhi, Jan 28 (IANS) The Reserve Bank of India Monday said inflation remains above the comfort zone and fiscal and current account deficits are still high, moderating expectations of an interest rate cut.

Mumbai/New Delhi, Jan 28 — The Reserve Bank of India Monday said inflation remains above the comfort zone and fiscal and current account deficits are still high, moderating expectations of an interest rate cut.

"Monetary policy needs to continue to be calibrated in addressing growth risks as inflation remains above the Reserve Bank's comfort level and macro economic risks from twin deficits persists," the central bank said in its quarterly report on the economy a day before the credit and monetary policy review.

The RBI said the although steps taken by the government to bring down the fiscal deficit to the 5.3 percent of the gross domestic product target had cut near term risks, further reductions in subsidies were needed for sustainable fiscal consolidation.

"Fiscal risks have somewhat moderated in 2012/13, but a sustained commitment to fiscal consolidation is needed to generate monetary space," it said.

The RBI last cut rates in April 2012 by 50 basis points.

It said headline inflation moderated in third quarter with significant moderation core inflation, but consumer price index inflation edged up to double digit.

"Going forward, risks remain for suppressed inflation, pressure on food prices and high inflation expectations getting entrenched into the wage price spiral. The inflation path for 2013-14 could face downward rigidity."

While stressing the need for calibrated measures in managing the country's monetary policy, the RBI lowered growth forecast to 5.5 percent in 2012-13.

"Growth in 2012-13 may fall below the Reserve Bank's October 2012 projection of 5.8 per cent. Even though a modest recovery may set in from Q4 of 2012-13 as reforms and efforts to remove structural constraints get underway, sustaining this recovery through 2013-14 would require all-round efforts in removing impediments for business activity," it said.

The central bank, which has maintained a tight monetary policy in view of the fiscal deficit and high inflation rates, in last month's guidance had said there was a "reasonable likelihood" of policy easing in the January-March quarter.

And there was wide expectation of an interest rate cut in Tuesday's review of credit and monetary policy for the financial year 2012-13 as data and government policies converged to build a reasonable case for that after the government partially deregulated the price of diesel and limited the number of subsidised cooking gas cylinders per household per year and inflation moderated.

Finance Minister P. Chidambaram has said the budget deficit would be contained in the current fiscal to 5.3 percent of Gross Domestic Product (GDP).

The headline inflation is still above the RBI's comfort level but it has begun showing signs of easing. As measured by the wholesale price index, it fell to a three-year low of 7.18 percent in December.

And core inflation (headline inflation minus food and energy inflation which have a more direct impact on monetary policy action) has been falling. In December, it had reached a 33-month low of 4.24 percent.

Another factor that may influence the RBI decision is the industrial production data, which had logged a negative 0.1 percent growth year-on-year in November 2012.

Despite the high hopes, there was cautious trade at the bourses. The BSE Sensex ended 0.18 points down at 20,103.35 points and the NSE Nifty closed 0.15 points up at 6,074.80. While interest-sensitive realty and auto scrips were up by over one per cent on the rate cut hope, oil and gas and consumer durables stocks fell over 0.9 per cent.

-- Indo-Asian News Service

rv-srj/dg

IANS

Source: IANS

 
Update
10

7 weeks ago

Thai Inflation Eases

Nov 3 2014 7:16am CST | Source: WSJ.com: Asia Home

Thailand’s consumer prices eased for the fifth consecutive month in October due to a decline in fresh food and energy prices, and economists maintained their predictions that the central bank won’t cut interest rates this we ...
Source: WSJ.com: Asia Home   Full article at: WSJ.com: Asia Home
 

 
Update
9

7 weeks ago

India's Manufacturing Activity Improves

Nov 3 2014 1:21am CST | Source: WSJ.com: Asia Home

India’s manufacturing activity improved in October and price pressures eased, but expectations of stronger demand would prevent the central bank from lowering its guard aga ...
Source: WSJ.com: Asia Home   Full article at: WSJ.com: Asia Home
 

 
Update
8

7 weeks ago

Life got more expensive in October

Nov 2 2014 5:59pm CST | Source: NEWS.com.au

THE TD Securities/Melbourne Institute monthly measure of inflation shows more prices rose than fell in Oc ...
Source: NEWS.com.au   Full article at: NEWS.com.au
 

 
Update
7

7 weeks ago

Why very low inflation can damage economies

Nov 1 2014 11:17am CDT | Source: USATODAY

For starters, when prices barely move, many people and businesses postpone purchase ...
Source: USATODAY   Full article at: USATODAY
 

 
Update
6

7 weeks ago

Japan Inflation Slows Again

Oct 30 2014 6:56pm CDT | Source: WSJ.com: Asia Home

Price growth in Japan weakened again in September, strengthening skepticism over the Bank of Japan’s bullish view on prices and its efforts to achieve its 2% pr ...
Source: WSJ.com: Asia Home   Full article at: WSJ.com: Asia Home
 

 
Update
5

7 weeks ago

Inflation linked bond funds have limited utility

Oct 30 2014 8:20am CDT | Source: Business Standard

Wouldn't you want to protect your investments from inflation? Earlier investing in gold was ...
Source: Business Standard   Full article at: Business Standard
 

 
Update
4

7 weeks ago

Against inflation

Oct 29 2014 11:08am CDT | Source: Business Standard

Government's positive changes to foodgra ...
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Update
3

7 weeks ago

Rajan to hold rates on Dec 2: Analysts

Oct 28 2014 5:53am CDT | Source: Bridgeville Public Library

Analysts are expecting inflation to fall further in October and November on base effect. Inflation measured by consumer prices has been trending down for over four months, and came in at 6.7 per ce ...
Source: Bridgeville Public Library   Full article at: Bridgeville Public Library
 

 
Update
2

8 weeks ago

NSE Nifty to trade in a band of 7,800-8,200

Oct 26 2014 10:25pm CDT | Source: Bridgeville Public Library

On the macro data front, inflation has been benign and could continue to be so till November when the base ...
Source: Bridgeville Public Library   Full article at: Bridgeville Public Library
 

 
Update
1

8 weeks ago

Capitol Report: Workers are now earning just what they did when recession hit

Oct 24 2014 10:54am CDT | Source: MarketWatch

Workers’ weekly earnings recently picked up. But after accounting for inflation, third-quarter earnings just matched what workers took home near the start of the recession ...
Source: MarketWatch   Full article at: MarketWatch
 

 
 

<a href="/latest_stories/all/all/8" rel="author">Luigi Lugmayr</a>
Luigi is the founding Chief Editor of I4U News and brings over 15 years experience in the technology field to the ever evolving and exciting world of gadgets. He started I4U News back in 2000 and evolved it into vibrant technology magazine.
Luigi can be contacted directly at ml@i4u.com. Luigi posts regularly on LuigiMe.com about his experience running I4U.

 

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