Retaining its growth forecast for the current fiscal at 8 per cent, the Reserve Bank on Tuesday said that there is no evidence of “broad-based slowdown”.
Despite concerns of industry that any further increase in interest rates would impact growth; the RBI went in for another round of hike, raising its key rates by 50 basis points. The market had expected only 25 basis points hike.
While announcing the quarterly credit policy review here, Reserve Bank of India (RBI) Governor D. Subbarao said this policy decision has been influenced by two broad considerations,
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The central bank considered the current economic growth scenario.
Though there are signs that growth is beginning to moderate, particularly in respect of some interest rate sensitive sectors, Dr. Subbarao said “there is no evidence, as yet, of a sharp or broad-based slowdown”.
Several indicators such as exports and imports, indirect tax collections, corporate sales and earnings and demand for bank credit suggest that demand is moderating, but only gradually.
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However, RBI said the revised and re-based index of industrial production (IIP) suggested that earlier signals of a growth deceleration in the second half of last year were exaggerated.
In fact, the growth momentum remained strong throughout last year. However, data for the first two months of this fiscal suggest that some moderation might be under way.
The second consideration was that demand pressures have remained strong, Dr. Subbarao said, adding the actual inflation so far has been even higher than expected.
The headline WPI inflation rate for the first quarter of this fiscal year remained stubbornly close to double digits and inflationary pressures continued to be broad-based.
Dr. Subbarao said that although the impact of past monetary policy actions is still getting transmitted, considering the overall growth-inflation scenario, “we determined that it is necessary to persevere with the anti-inflationary stance.”