Business Standard

Amplifying macro-financial risks warrant cautious monetary policy stance

Image

Capital Market

RBI Macroeconomic and Monetary Developments - First Quarter Review 2013-14

RBI in its Macroeconomic and Monetary Developments - First Quarter Review 2013-14, report stated that: Growth is expected to improve slowly as the year progresses, but recovery is likely to be slow.

Various surveys indicate further drop in business confidence. The Reserve Bank's Industrial Outlook Survey shows weakening of business sentiments in Q1 of 2013-14 to a three year low, though expectations showed improvement for Q2.

Headline inflation based on wholesale price index (WPI) has moderated to below 5 per cent, while consumer price inflation has remained at an elevated level of near double digits. Upside risks persist with recent rupee depreciation and rise in crude prices amidst political uncertainties in the Middle East.

 

Professional forecasters outside the Reserve Bank project modest recovery in 2013-14 at 5.7 per cent. The latest forecast is a downward revision from 6.0 per cent in May 2013. Their average WPI inflation projection of 5.3 per cent for 2013-14 marks a sharp downward revision from 6.5 per cent in May 2013.

Recent liquidity tightening measures taken by the Reserve Bank to curb volatility in the exchange rate provide, at best, some breathing time. This strategy will succeed if reinforced by structural reforms to reduce the current account deficit (CAD) and step up savings and investment.

Powered by Capital Market - Live News

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jul 29 2013 | 7:29 PM IST

Explore News