The Reserve Bank of India (RBI) has warned that the space for action for 2013-14 remains very limited in view of macro-financial risks that stay significant,headline inflation remaining above the threshold and consumer price inflation remaining high.
On the whole,inflation during 2013-14 is likely to remain range-bound around current levels,but stay above the Reserve Banks comfort level, the RBI said on the eve of the unveiling of the Annual Monetary Policy review.
In its report on Macroeconomic and monetary developments in 2012-13,the central bank said headline inflation is likely to remain range-bound in 2013-14,with some further moderation in first half due to subdued producers pricing power and falling global commodity prices,before it increases somewhat in the second half largely due to base effects.
If some of the risks come to fore,policy re-calibration may become necessary,it warned. The factors that the RBI had been highlighting are: the lack of adequate adjustment from the fiscal side,a wide current account deficit and upside risks to inflation.
This is why even when growth had fallen off significantly,the RBI had been hesitant in easing monetary policy in a hurry.
RBIS SIX RISK FACTORS
If consumption decelerates markedly and impacts staples and not just discretionary items,it could delay recovery
The risk of a sub-normal monsoon cannot be ignored altogether for FY14 despite the good forecast
The biggest risk to recovery comes from failure to complete policy action to remove supply-side constraints
If growth slows down further it could result in revenue shortfalls that could lead to fiscal risks
Global risks still remain significant which could adverse impact in the form of sudden stop and reversal of capital inflows
While global inflation is expected to stay muted in the near term,liquidity could feed into long-term inflation expectations at some stage