India’s central bank governor sees limited room for further monetary easing

Nathan Andrada – Fourth Estate Cooperative Contributor

New Delhi, India (4E) – Reserve Bank of India (RBI) Governor Duvvuri Subbarao said that the extent of reducing interest rates continues to be limited by inflation risks amid calls to further boost the economy that has expanded in its slowest pace in a decade.

Subbarao said that although there is room to ease monetary policy in the next several months, that room is limited given the outlook for inflation and economic growth.

India’s central bank earlier this year moved to support its own government’s efforts to boost the economy. Last month, the country became the first major Asian economy to slash interest rates this year following a decrease in benchmark inflation.

Subbarao predicts the economy to grow 5.5 per cent for the 12-month period through March 2013, higher than the 5 per cent projection by the country’s Central Statistics Office.

India’s finance minister P. Chidambaram, who will unveil the government’s annual budget on Feb. 28, has said actions will be taken to curb public spending to limit the chance of price pressures reemerging in the economy.

The RBI Governor stated he will take into account the Finance Ministry’s deficit projections and fiscal consolidation measures during the upcoming annual budget in his decision for monetary policy action.

Making things difficult for policymakers is the country’s swelling current account deficit, the broadest gauge of trade, which has reached a record $22.31bn in the three months ended Sept. 30. The current fiscal year’s gap is expected to be higher compared to the last. The falling rupee against the major currencies is also not helping exports in the short term, according to Subbarao during a Feb. 16 briefing.

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