India's Economy May Grow 6.5% This Year, RBI Says
July 27 (Bloomberg) -- India's economy may grow at a faster pace than earlier forecast this year, the central bank said, reducing the chance of a cut in the key policy rates tomorrow.
Asia's third-largest economy may expand 6.5 percent in the year ending March 31, the Reserve Bank of India said, citing a survey of eight estimates it conducted in June from agencies including the World Bank and the Asian Development Bank. The survey in March had estimated a 5.7 percent gain.
"The macroeconomic outlook of the Indian economy, based on various business expectation surveys indicates that the earlier decline in overall business sentiment has reversed," the central bank said in a report on the economy ahead of the monetary policy announcement tomorrow. "Emerging lead information indicates firming up of inflation over time."
The central bank's report on growth and inflation suggests Governor Duvvuri Subbarao may not lower interest rates further from the current record lows. The bank slashed rates six times since October while the government cut taxes and stepped up spending to support the local economy as the global economy sunk deeper into a recession.
"The RBI's key interest rates look set to remain unchanged for some time," said Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore. "The expansionary budget and prospect of a pick up in wholesale prices in the months ahead makes a near term rate cut unlikely."
In its latest inflation reading last week, the government raised its final wholesale price inflation estimate for the week ended May 16 to 1.65 percent from 0.61 percent, indicating the gathering pace of price gains.
Base Effect
The inflation rate has been subdued because prices rose faster in the same period last year, the central bank said, adding that the outlook could change "with the waning of last year's high base effect".
"The monetary response to these developments would require continuous coordination with fiscal policy," the central bank said in its report.
Finance Minister Pranab Mukherjee's budget for the year to March 31 has added to inflation risks. Mukherjee, who wants to spur growth to 9 percent a year, on July 6 stepped up spending on roads and aid to poor, widening the budget deficit to 6.8 percent of gross domestic product. It would result in record borrowings of 4.51 trillion rupees ($94 billion) this year, the finance ministry estimates.
The economy grew 6.7 percent in the year ended March 31, the weakest pace since 2003.
"While the fiscal stimulus raised aggregate demand, there is a need to address the challenges for fiscal consolidation with a view to returning to the high growth path at the earliest," the central bank said today.
To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net
July 27 (Bloomberg) -- India's economy may grow at a faster pace than earlier forecast this year, the central bank said, reducing the chance of a cut in the key policy rates tomorrow.
Asia's third-largest economy may expand 6.5 percent in the year ending March 31, the Reserve Bank of India said, citing a survey of eight estimates it conducted in June from agencies including the World Bank and the Asian Development Bank. The survey in March had estimated a 5.7 percent gain.
"The macroeconomic outlook of the Indian economy, based on various business expectation surveys indicates that the earlier decline in overall business sentiment has reversed," the central bank said in a report on the economy ahead of the monetary policy announcement tomorrow. "Emerging lead information indicates firming up of inflation over time."
The central bank's report on growth and inflation suggests Governor Duvvuri Subbarao may not lower interest rates further from the current record lows. The bank slashed rates six times since October while the government cut taxes and stepped up spending to support the local economy as the global economy sunk deeper into a recession.
"The RBI's key interest rates look set to remain unchanged for some time," said Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore. "The expansionary budget and prospect of a pick up in wholesale prices in the months ahead makes a near term rate cut unlikely."
In its latest inflation reading last week, the government raised its final wholesale price inflation estimate for the week ended May 16 to 1.65 percent from 0.61 percent, indicating the gathering pace of price gains.
Base Effect
The inflation rate has been subdued because prices rose faster in the same period last year, the central bank said, adding that the outlook could change "with the waning of last year's high base effect".
"The monetary response to these developments would require continuous coordination with fiscal policy," the central bank said in its report.
Finance Minister Pranab Mukherjee's budget for the year to March 31 has added to inflation risks. Mukherjee, who wants to spur growth to 9 percent a year, on July 6 stepped up spending on roads and aid to poor, widening the budget deficit to 6.8 percent of gross domestic product. It would result in record borrowings of 4.51 trillion rupees ($94 billion) this year, the finance ministry estimates.
The economy grew 6.7 percent in the year ended March 31, the weakest pace since 2003.
"While the fiscal stimulus raised aggregate demand, there is a need to address the challenges for fiscal consolidation with a view to returning to the high growth path at the earliest," the central bank said today.
To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net
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