New Delhi, Jan 28: Citing high inflation and widening Current Account Deficit (CAD) as big constraints, Reserve Bank of India (RBI) today said there is limited scope for monetary actions like interest rate cut to boost growth in the third quarter policy to be announced on Tuesday.
"Given the preponderance of non-monetary factors behind the current slowdown in an environment where risks from high inflation, current account and fiscal deficits still remain, the scope for supportive monetary policy action is constrained", RBI said in its report on Macroeconomic and Monetary Developments issued on the eve of policy.
The central bank, however, said that with the government executing economic reforms measures, it would be possible for the monetary policy to increasingly focus on revival of growth.
Meanwhile, the professional forecasters sponsored by the RBI lowered the economic growth projection for India in the current fiscal to 5.5 per cent from 5.6 per cent projected earlier.
They have also cut the growth forecast for the next financial year to 6.5 per cent from 6.6 per cent.
As regards inflation, RBI said it was likely to moderate below its projection of 7.5 per cent by March-end. However, it added, "suppressed inflation continues to pose a significant risk to the inflation in 2013-14. As some of the risks materialises, inflation path may turn stick."
Referring to recent reforms initiatives, it said, "(they) have reduced immediate risks, but there is a long road ahead to bring about a sustainable turnaround for the Indian economy. Business sentiments remain weak despite reform initiatives and consumer confidence is edging down."
Highlights:
* Economic growth in the current fiscal likely to fall below estimate of 5.8 per cent: RBI.
* RBI projects March-end inflation to fall below 7.5 per cent, but warns of upside risks.
* Average WPI inflation to moderate to 7 per cent in 2013-14 from 7.5 per cent in current year: RBI.
* Widening Current Account Deficit (CAD) major constraint in easing monetary policy: RBI
* RBI-sponsored survey projects sticky inflation and slow recovery in 2013-14.
* RBI-sponsored survey lowers economic growth projection to 5.5 per cent for 2012-13, and 6.5 per cent for next fiscal.
