Monetary policy may pull down growth: RBI

The slowdown in growth momentum may affect the quality of the assets of financial sector,according to the RBI’s Financial Stability Report-June 2011 released here today.

The central bank,which has raised key interest rates nine times since March 2010 to check price rise,has pegged India’s gross domestic product (GDP) growth rate for the current fiscal at 8 per cent,down from 8.6 per cent recorded in FY11.

The report,however,said India’s macroeconomic undamentals continue to remain strong,notwithstanding the prevailing inflationary pressures and concerns on the fiscal front.

The Reserve Bank said the recent decline witnessed in international oil prices “may not help in inflation management as complete pass-through of previous escalations is

still to be affected”.

The international prices of food,energy and commodities

are expected to remain high during 2011-12,it added.

Moreover,inflation is likely to face upward pressure

from higher subsidy expenditure of the government and the rise

in wages and raw material prices,according to the report.

Referring to the recent growth in Indias exports,the

RBI said it may off-set,at least partially,the expected

increase in the import bill due to elevated oil and commodity

prices.

On the current account deficit (CAD) front,the RBI said,

“there does not seem to be an impending pressure on the

financing of CAD”.

The central bank,however,cautioned that “as the

advanced economies exit from the accommodative monetary

policy,there could be some slow down in capital inflows”.

It said concerns over the global economic environment and

the uncertainty revolving around the path of global recovery,

are the “main underlying factors behind global imbalances that

remain largely unaddressed”.

Referring to the the sovereign debt crisis in European

countries like Greece,Portugal,and Ireland and the

ballooning government debt in some advanced countries,the RBI

said these “remain threats to global stability”.