High interest rate hurting growth, says RBI
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Admitting that high interest rate is hurting economy, the Reserve Bank of India (RBI) on Friday said the country's growth rate is likely to moderate to 7.5-7.6 per cent this fiscal.
"Since we had 7.7 per cent in first quarter of 2011-12, we should expect that average for the remaining part of the year to be 7.5-7.6 per cent. This is partly because we have been raising interest rates," RBI Deputy Governor Subir Gokarn told reporters.
The economy, he said, has been slowing down since the last (January-March) quarter of 2010-11 when it recorded a growth rate of 7.8 per cent.
In its mid-year monetary policy review last month, RBI had lowered the growth projections to 7.6 per cent for 2011-12 from 8 per cent estimated earlier. In the previous fiscal economy grew by 8.5 per cent.
The RBI Deputy Governor further said that slowdown in economy was impacting the overall investment scenario in the country.
Slowing investments was getting reflected in the index of industrial production (IIP), which dipped to two year low of 1.9 per cent.
In the first half of the fiscal IIP grew by 5 per cent, lower than 8.2 per cent growth in the corresponding period last fiscal. The Reserve bank has raise interest rates by 375 basis points since March, 2010 in its bid to tame inflation, which is still hovering around 10 per cent.
Inflation, Gokarn said would start moderating from December onwards and dip below 7 per cent in April, 2012.
"Downward trajectory of inflation begins in December and will continue... You can infer that it will come down below 7 per cent in April," he said.
Gokarn said the overall inflation is being driven mainly by food inflation, which account for 15 per cent in the basket. Food inflation stood at 11.81 per cent for the week ended October 29. Food inflation, he said is mainly being driven by protein based items, fruits and vegetables.
"Food inflation at 11 per cent is not a healthy situation. Pressure on food inflation remains. The risk of it becoming endemic remains," Gokarn added.
As per the latest data for the week ended October 29, eggs, meat and fish became costlier by 12.74 per cent, vegetables by 26.05 per cent and fruits by 11.70 per cent. Gokarn said the deceleration in demand will actually help to stabilise inflation going ahead. "...since we see that in a visibility sense now, we think it was appropriate to give the guidance that we may have reached the peak of the interest rate cycle but it remains a guidance because we are not discounting the risk that inflation could re-emerge," he added.
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