Economic Survey: Accommodative monetary policy possible due to easing inflation
   
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Economic Survey: Accommodative monetary policy possible due to easing inflation

Last Updated: Wednesday, February 27, 2013, 20:37
 
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Economic Survey: Accommodative monetary policy possible due to easing inflation
New Delhi: There is more room for an accommodative monetary policy in view of easing inflation and expected fiscal consolidation, says the Economic Survey.

"There has been some moderation in inflation in third quarter of 2012-13 and with the expected fiscal consolidation, the current macroeconomic situation creates room for a more accommodative monetary policy," the Survey for 2012-13 tabled in Parliament said.

Reserve Bank had cut repo rates by 0.5 percent in April, 2012 and by 0.25 percent in January 2013. Next mid-quarter policy review will be unveiled on March 19.

It said, further shift in Reserve Bank's Monetary Policy stance is desired with improved access to credit.

"...With a significant part of inflation getting generated because of poor supply responses, a further shift in the policy stance of RBI, coupled with improving access to credit with moderation in its cost would be desirable."

To fight high inflation, RBI had resorted to tight monetary policy stance during January 2010 to October 2011 and raised policy rates by 3.75 percent, from 4.75 percent to 8.5 percent.

In this period, inflation moderated from its peak of 10.9 percent in April 2010 to an average of 7.6 percent during April-December 2012.

However, the Survey said: "The positive effect of continuous policy easing by the major advanced and developing countries could pose a higher risk to inflation expectations and may be considered as an upside risk to inflation forecast."

But in the short run, impact of policy easing may not lead to surge in inflation and inflation expectations may remain contained around current target inflation rates, it said.

The Survey has pegged headline WPI based inflation at about 6.2-6.6 percent by March 2013.
WPI inflation had declined to 6.62 percent in January 2013 from 7.18 percent in December 2012 and 7.23 percent in January 2012.

The Survey said though RBI's monetary policy stance was targeted to contain inflation and give a thrust to growth, tight policy regime coupled with domestic and global factors led to a slower economic growth.

"Increasing risks to growth from external as well as domestic sources and tight monetary policy in face of persistent inflationary pressures have contributed to a sharper slowdown of the economy than anticipated," it said.

India's GDP growth is expected to slip to a decade's low of 5 percent for the fiscal ending March 31, 2013.

PTI



First Published: Wednesday, February 27, 2013, 20:37


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