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“There has been some moderation in inflation in the third quarter (October-December) of 2012-13 and with the expected fiscal consolidation, the current macroeconomic situation creates room for a somewhat accommodative monetary policy,” said the survey.
According to the survey with moderation in non food manufacturing sector and global commodity
prices, the headline WPI inflation may decline to 6.2 to 6.6% in March. Besides that the survey expects moderate global commodity prices in 2013 and 2014 to aid a benign inflation outlook in 2013-14.
The Wholesale Price Index (WPI), the main inflation indicator, rose an annual 7.18% in December compared with 7.24% in November. The pace of WPI inflation in December was the slowest since December 2009 which thus gave comfort to the central bank to cut the repo rate by 25 basis points in the third-quarter review of the monetary policy held on January 29. Earlier this fiscal RBI had cut the repo rate in April by 50 basis points.
The WPI inflation eased further to 6.62% in January. The Jan 2013 inflation data was the lowest in over three years due to slower rise in fuel and manufactured goods prices.
The survey also quotes that as per the assessment of RBI, global economic and financial conditions have continued to remain too fragile to provide any external growth stimulus to the economy. On the other hand, inflationary pressures originating from within the country and outside, particularly the depreciating rupee exerting its pressure on tradables, may make any reduction in policy rates counterproductive.
“Furthermore, tight liquidity conditions emerged as a risk to adequate flow of credit to productive sectors,” the survey said.
The survey justifies RBI's stance to cut the repo rate again in January. “Monetary policy therefore has continued to follow a cautious stand, which, while keeping liquidity comfortable to support growth, had to pause in its policy rate reduction during April-December 2012 due to persistent inflation risks,” says the survey.
According to the survey this cautious monetary policy stance was also considered necessary by RBI in view of mounting subsidies and deteriorating fiscal situation. “Government in September 2012, however, announced a road map of fiscal consolidation with a clearly defined midterm fiscal target. It also attempted to improve the investor perception and create a favourable environment for investment,” said the survey.
In January 2013, the Government also announced an increase in diesel prices to indicate its resolve to reduce fiscal deficit consistent with the medium term fiscal target announced earlier in September, 2012, said the survey.
