RBI feels risks high, unlikely to cut rates

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The Reserve Bank of India (RBI) on Monday said that the growth in the Indian economy is likely to remain below potential in FY 2013 as newer risks to growth have arisen from slowing global trade, domestic supply bottlenecks of industrial inputs, coal and electricity and less than satisfactory monsoon so far.

An RBI survey of economists forecast the Indian economy to grow at 6.5 per cent in FY 13 from the 7.2 per cent forecast in a survey three months ago.

However, in an indication that the RBI would hold the policy rate steady, RBI in its first quarter review of the macro economic and monetary developments warned that inflation is likely to remain sticky during 2012-13 and therefore a recovery should be supported through non-inflationary measures.

“The near-term outlook on inflation continues to be marked by a number of upside risks, despite the significant slowdown in growth. These are unlikely to be mitigated in the near term,” RBI said in its report while revising upwards its outlook on the average inflation for FY 13 to 7.3 per cent.

RBI has put the onus for the revival of domestic growth on the government through policy actions like removing constraints on foreign direct investment (FDI) and revamping the subsidy schemes.

“Decisive policy actions supported by credible commitment to a long-term strategy for correcting macroeconomic imbalances and stimulating investment is crucial at this stage to revive confidence as well as provide space for monetary policy to help sustain growth while keeping inflation under control,” RBI said.

The apex bank also noted that the risk of hidden inflation continues to remain significant as the administered prices of fuel have not been revised for more than a year despite global crude oil prices declining.

“Since March 2012, the extent of crude oil prices decline in dollar terms has been substantial enough to reduce the price in Indian rupee terms despite depreciation of the rupee,” RBI said.