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Tuesday, January 27, 2009

RBI maintains status-quo on rates

Cuts GDP growth projections to 7% for 2008-09 and inflation to 3% by end of March 2009

The Reserve Bank of India (RBI), has maintained the status quo on all the policy rates. But it has reduced the GDP growth forecast for the Indian economy downwards to 7% for 2008-09 at it third quarter review of monetary policy for 2008-09, from 7.5-8% of the growth predicted in the Mid-Term review of the monetary policy presented in October 2008.

The RBI said that the outlook on real GDP growth has been affected further and the downside risks to growth have amplified because of slowdown of industrial activity and weakening of external demand as reflected in decline in exports. Further, it expects the services sector activities are likely to further decelerate in the second half of 2008-09.

Factoring in the pressures on commodity prices, reflecting slump in global demand and sharp decline in crude oil prices together with the slide in prices of metals, food grains and cement, the RBI expects the WPI inflation to decelerate to below 3% by end-March 2009 against its earlier prediction of 7% set for the year ending March 2009.

RBI also urged the need to expand the flow of credit to productive sectors of the economy at viable rates to arrest the moderation. It also raised the its indicative projection of total flow of credit from the banking sector to the commercial sector to 24% for 2008-09 from 20% envisaged in the Annual Policy Statement.

As the upside risks to inflation have declined, monetary policy has been responding to slackening economic growth in the context of significant global stress. Accordingly, the RBI raised the projection of money supply (M3) growth for 2008-09 to 19% from 16.5-17% made earlier. Consistent with this, the aggregate deposit growth for 2008-09 is revised to 19% from 17% earlier.

Source: Capital Market

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