New Delhi: Faced with the global financial crisis and a slowing economy, India’s monetary policy is biased towards stimulating growth, and the Reserve Bank of India (RBI) is likely to lower rates as inflation cools, finance minister P. Chidambaram said.
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“If the rate of inflation continues to decline, the policy rates may also moderate and the bias in favour of growth may deepen,” he told a meeting with economic editors on Monday.
Indian policymakers are grappling with the impact of the global financial crisis on the broader economy and have taken several steps in recent weeks, including sharp cuts to interest rates and banks’ reserve requirements, to protect the economy.
Chidambaram said expansion would moderate this fiscal after the world’s credit woes arrived on India’s shores and high interest rates to tame inflation trimmed demand.
Shifting focus: Union finance minister P. Chidambaram at the economic editors’ conference in New Delhi on Monday. B Mathur / Reuters
But in a report prepared for the meeting, he said: “The circumstances continue to be largely favourable for sustained, rapid and more inclusive growth of the economy.”
Prime Minister Manmohan Singh said last week that despite an adverse international environment India could sustain growth of about 8% in the fiscal year to end-March. Private economists, however, predict growth of around 7%, lower than 9% in the last three years.
Inflation eased for two successive weeks in early November helped by lower fuel prices and slowing demand and now stands below 9%, adding to expectations RBI would aggressively lower rates as growth falters.
The finance ministry report prepared for Monday’s conference said the economy was likely to slow this fiscal year but growth of 7-8% would still be among the best given the financial crisis and a slowdown in major export markets.
Chidambaram said the government may have to “revisit and revive” pending reforms and he hoped credit flows would improve by the end of November or December. He added the government may need one more year to meet its revenue deficit target but fiscal consolidation remains a priority for the government.