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RBI hints at moderation in economic growth

MUMBAI: The Reserve Bank of India on Monday sent signals of a possible rate cut, as it warned about moderation in economic growth a day before it reviews its monetary policy stance.

In the Macroeconomic and Monetary Development Review, released on the eve of the policy, the apex bank hinted that economic growth, which has been robust, could witness some moderation this year mainly because of a slowdown in industrial and services sectors.

At the same time, it said the inflation rate had eased a bit even as the pressure remained due to surging global oil prices whose pass-through has been incomplete on domestic prices.

It also said that despite strong domestic fundamentals, business confidence indices indicated some softening of sentiment against the backdrop of high global crude oil prices and global uncertainties. Though it does not indicate the likely stance of the policy on Tuesday, the review usually outlines the situation in the economy.

Elaborating on the price situation, the review said the inflation rate had remained suppressed since pass through of the higher global crude oil prices remained incomplete on domestic price.

Also, elevated global food prices pose inflationary risk in the period ahead.

On growth, it said that though agriculture recorded a higher growth in the first half of 2007-08, industrial and services sectors’ growth was lower than the previous years, indicating that there could be moderation in the overall growth. The inflation rate eased to 3.8 per cent on January 12 from 6.2 per cent a year ago mainly led by primary food articles and some manufactured products, the RBI said. — PTI

Mumbai Special Correspondent writes:

The RBI stated that the headline inflation firmed up in major economies during the third quarter of 2007-08, reflecting the combined impact of higher food and fuel prices as well as strong demand conditions, especially in emerging markets.

“The monetary policy response during the quarter, however, was mixed in view of heightened concerns about the implications of credit crunch arising out of the U.S. sub-prime crisis on financial stability,” the RBI stated.Global commodity prices firmed up during the third quarter of 2007-08 led by food and crude oil prices, although there was some moderation in prices of metals.

During the third quarter of 2007-08, international financial markets remained volatile as uncertainties about the U.S. sub-prime mortgage market and other credit markets exposures persisted.

Indian financial markets remained generally orderly for the most part of the third quarter of 2007-08 except for some volatility in the equity market. Swings in cash balances of the Government and capital flows were the main drivers of liquidity conditions in the financial markets.

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