While retaining economic growth estimates for 2011-12 at eight per cent, the Reserve Bank of India (RBI) has cautioned about emerging downward risks emanating from the uncertain global environment and domestic inflationary pressures. The central bank also said global commodity prices would shape its monetary policy stance in the future.
In its annual report for 2010-11, RBI had retained its growth projection at eight per cent for 2011-12 in its first quarter review in July. Overall growth in 2010-11 is estimated at 8.5 per cent, and is likely to be higher after factoring in the new index of industrial production series.
“Downside risks to growth have increased since our assessment in July. The decline in global commodity prices has not been significant, and despite all the financial market turbulence, oil prices are back to earlier levels,” RBI Deputy Governor Subir Gokarn said.
On global factors, RBI said high oil and commodity prices, even after some correction, remains high and could adversely impact growth. The central bank also painted an uncertain picture of the industrial sector, where it saw downside risks outweighing upside ones. According to RBI, the downside risks arise from falling business confidence in the wake of global uncertainties, political factors and firm commodity prices amidst high inflation and a weak response of supply side factors.
On inflation, the central bank has maintained its earlier stance that a moderation in prices can only be expected by the end of 2011-12. RBI expects inflation to come down to seven per cent by March 2012.
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