Inflation in India still remains high and economic growth remains a concern, Reserve Bank of India Governor Duvvuri Subbarao said.
“It’s a decline from the peak but it is still quite high,” Subbarao told management students in the northern Indian city of Lucknow, referring to inflation.
India’s benchmark inflation eased to a three-year low in December, boosting scope for an interest-rate cut to support the economy, which is poised to expand at the slowest pace in a decade.
“When growth is slowing down you can stimulate the economy either by monetary easing or by fiscal stimulus,” Subbarao said. “But both monetary and fiscal side have no room for stimulus. So that is the big concern.”
The central bank signaled Dec. 18 that monetary policy should shift toward revitalizing growth as the fastest inflation among major emerging markets slows.
The Reserve Bank of India will lower borrowing costs 25 basis points to 7.75 percent on Jan. 29, according to 13 of 16 analysts in a Bloomberg News survey. The rest expect a 50 basis-point cut.
The benchmark wholesale-price index rose 7.18 percent in December from a year earlier, the slowest pace since December 2009, the Commerce Ministry said yesterday. The Finance Ministry predicts gross domestic product will rise as little as 5.7 percent in the year to March 31, the slowest since 2002-2003.
Indian inflation remains the fastest in the BRIC group of major emerging markets, stoked by supply bottlenecks and a more than 5.5 percent drop in the rupee against the dollar in the past 12 months. BRIC includes Brazil, Russia, India and China.