The Reserve Bank of India (RBI)-sponsored professional forecasters on Monday scaled down India's growth projection to 4.8 per cent for the current fiscal from 5.7 per cent estimated earlier.
In its Macroeconomic and Monetary Developments Second Quarter Review 2013-14, the central bank said the survey by professional forecasters outside the Reserve Bank indicated a slowdown in growth. "The median growth forecast for 2013-14 was revised downwards to 4.8 per cent from 5.7 per cent in the previous round, which is lower than the growth of 5 per cent registered during 2012-13," the RBI said.
RBI believes inflation will persist at levels above those indicated by it earlier even as it expects only a "modest recovery" in growth in the second half of the current fiscal. "Especially the persistence of high CPI (consumer price index) inflation remains a concern," it said.
Food prices (especially onion and rice) have remained stubbornly high despite the good monsoon and have been significant contributors to inflation. Inflation based on the Wholesale Price Index touched 6.46 per cent in September, while that based on retail or Consumer Price Index stood at 9.84 per cent.
Under the circumstances, "monetary policy will need to aim at anchoring inflation expectations while appropriately addressing growth risks", the central bank observed in a review of the economy.
A survey, conducted by the Reserve Bank of India to gauge inflation expectations, reveals "Notwithstanding a good monsoon and bumper crop, the man on the street believes that prices of food products will increase over the next three months to a year."
The RBI defines anchoring inflationary expectations as one of its key functions. Therefore, it can be interpreted that the expectations of people that prices will only go up might put the RBI ill at ease when it meets to decide the monetary policy.
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