MUMBAI Jan 28 India's central bank said a
sustained commitment to contain fiscal and current account
deficits was needed to create room for monetary easing, a day
before it is widely expected to cut interest rates for the first
time since April.
While the near-term risks to a bloating fiscal deficit have
waned following the government's recent policies to stick to its
fiscal deficit target of 5.3 percent of GDP, sustainable fiscal
consolidation would require cuts in subsidies.
"As reforms get executed, monetary policy could increasingly
focus on growth revival," the Reserve Bank of India said in its
quarterly report on macroeconomic and monetary developments on
The Reserve Bank of India added that even if inflation
recedes further, the wide current account deficit may slow the
pace of monetary policy easing. The current account gap had
touched a record high of 5.4 percent in July-September and is
likely to rise further in the December quarter, it said.
The RBI also said its survey of professional forecasters had
lowered the growth forecast for the 2012/13 fiscal year ending
March to 5.5 percent from 5.7 percent previously. In October,
the central bank lowered its own forecast for 2012/13 growth to
5.8 percent from 6.5 percent.
The survey also revised down the average wholesale price
index inflation forecast to 7.5 percent from 7.7
percent. In October, the RBI had forecast that inflation would
be running at 7.5 percent by March, though December's rate of
7.18 percent was the lowest in three years and better than the
bank had expected.
The RBI is expected to reduce the policy repo rate
by 25 basis points to 7.75 percent in a policy
review on Tuesday, making its first cut in nine months,
economists polled by Reuters said earlier this month.
(Reporting by Suvashree Dey Choudhury and Aradhana Aravindan)