He also suggested the need to remain on guard as the growth in non-food bank credit and monetary aggregates were higher than projections and contrasting liquidity conditions in the Government securities market vis-a-vis money markets.
Reddy pointed out that there were several positive factors in domestic developments during 2006-07 so far, inter alia: reasonably robust corporate performance, pick-up in investment activity, strong demand for bank credit, growth in new order books, increase in capacity utilization, ample liquidity, stabilisation of inflation since mid-June and strong export growth.
According to him, while prospects for growth in the world economy in 2006 were considered bright in the near-term as reflected in indicators of business confidence and unemployment in major economies, there were several downside risks to the economic outlook internationally as well.
They include, according to him, large fiscal deficits, low household savings and low investment in some large economies; unprecedented and growing current account imbalances; narrowing or closing in of output gaps in many economies; record highs in oil prices accompanied by uncertainties about their future evolution; the outlook for inflation firming up; the hardening of international interest rates along with the direction of movement in setting monetary policy; and re-pricing of risks by financial markets, in particular, in emerging market economies.
