The apex bank of India or the Reserve Bank of India (RBI), in its monetary policy review on December 18, 2012 kept the repo rate unchanged at 8 per cent. The bank re-iterated its guidance on easing the policy in the coming quarter. The cash reserve ratio (CRR) was also unchanged and was held constant at 4.25 per cent.
The WPI inflation data released recently in November though eased the tension to some extent as the data recorded fell to a 10 month low of 7.24 per cent. Also the recent decline in the core inflation helped in easing the tension over the poor economic performance. The comforting core inflation data reflected slowing demand-side pressures in the economy.
If we talk about the breakup in different types of inflation data, we see that the non-food manufacturing inflation fell to 4.5 per cent in November from 5.8 per cent in August. On the other hand the primary and fuel inflation as reported earlier were revised significantly upwards, revisions in core inflation have been relatively minor, confirming weak demand conditions in the economy.
Owing to the fact of the lagged impact of slowing GDP growth (demand) this year on core inflation (prices), WPI inflation is likely to moderate further in the year 2013-14.
With GDP growth expected to slow sharply to around 5.5 per cent in 2012-13, from 6.5 per cent last year, average core inflation next year is expected to be much lower than in the current fiscal. On the other hand, due to the continuous revision in the fuel prices there would be an increase in WPI inflation in 2013-14 from the comfort level of 5%.
Credit off take growth
Deposits to grow
Thus we can see that RBI is planning to ease the monetary policy in the coming quarter. The effort from the government towards the reforms in different sectors and also the favorable numbers reported in case of inflation suggests a better monetary policy in days to come which would help the economy grow at a much rapid rate than expected.
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