‘Very limited’ room for monetary easing, says RBI

Mumbai, May 2 (IANS) Dashing expectations of an interest rate cut that have risen because of the recent softening in inflation, as well as decline in crude and gold prices, the Reserve Bank of India Thursday said there is “very limited” space for that in fiscal 2013-14 because of multiple global and domestic risks, notably inflation.

A day before its annual monetary policy statement, the bank released the country’s macro economic report and forecast a slow paced economic recovery this financial year, and reduced the growth rate to 6.0 percent from 6.5 percent.

In the document which serves as a backdrop to the Monetary Policy Statement 2013-14 to be announced May 3, the bank made it clear that low interest rates alone would not be enough to kick-start economic growth, and that a “cautious” monetary policy was needed because of both the local and global risk factors.

It said that for economic growth to revive, the government needed to do much more in terms of removing infrastructure bottlenecks and improving governance.

“Recovery at the current juncture will critically depend on supply-side action to remove a host of micro-constraints and structural bottlenecks that impede production and investment, especially in growth-driving sectors such as road and power. The government has initiated action in this direction, but progress has been slow, making it imperative for decisive action to be taken quickly on the outstanding issues,” the Survey said.

It said headline inflation is likely to remain range-bound in 2013-14, with some further moderation in the first six months due to subdued producers’ pricing power and falling global commodity prices, before it increases somewhat in the second half largely due to base effects.

The bank said global growth is likely to stay sluggish and fiscal adjustments will drag growth down in advanced economies and delay cyclical recovery in emerging market and developing economies.

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