RBI ups inflation projection to 7 percent, positive on growth
By IANSTuesday, January 25, 2011
MUMBAI - With food prices continuing to rule high, the Reserve Bank of India Tuesday revised its current fiscal year-end projections for inflation, raising it to 7 percent from the earlier 5.5 percent, but said it was hopeful of the economy growing at a robust 8.5 percent.
“While the impact of transitory factors is expected to wane, the price pressures on account of demand-supply imbalances in respect of some commodities will persist,” said RBI Governor D. Subbarao in the third quarter review of monetary policy 2010-11.
“Considering the increase that has already occurred and the emerging domestic and external scenario, the baseline projection of wholesale price inflation for March 2011 is revised upwards to 7 percent from 5.5 percent,” he added.
The central bank Tuesday hiked its repurchase or repo rate to 6.5 percent from 6.25 percent and reverse repo rate to 5.5 percent from 5.25 percent in a bid to tame prices that have resulted in annual food inflation soaring to double digits.
The RBI said that taming prices would remain on top of its list of priorities after India’s annual food inflation shoot up to a 52-week high of 18.32 percent for the week ended Dec 25, before falling slightly to 15.52 percent for the week ended Jan 8.
The RBI was, however, optimistic about economic growth this fiscal, but added that the momentum could slow down in the financial year 2011-12.
“With the risks to growth in 2010-11 being mainly on the upside, the baseline projection of real gross domestic product (GDP) growth is retained at 8.5 percent as set out in the second quarter review of monetary policy of July 2010, but with an upside bias.”
“Looking beyond 2010-11, the Reserve Bank expects domestic growth momentum to stabilise, though the gross domestic product growth rate may decline somewhat as agriculture reverts to its trend (assuming a normal monsoon),” it added.
