The RBI on Monday stated that the government’s reform efforts, especially those related to expenditure on subsidies, are a move in the right direction but not adequate to avert fiscal slippages in the current fiscal.
So a swift implementation and further measures are needed, while warning that inflation still remains a risk, but RBI said it would take steps to support growth in the half-yearly review of monetary policy on Tuesday, which suggests a likely cut in interest rate.
“Monetary policy needs to be cautious in the interim, focusing on inflation while using the available space to support growth to the degree it can,” RBI said in its Macroeconomic and Monetary Development Review on Monday while noting that inflation pressure is likely to moderate starting in the January-March quarter, a sign that it may soon be ready to ease policy interest rates.
Interest rates are unchanged since April. “As macro-risks from inflation and twin deficits recede further, that could yield space down the line for monetary policy to respond more effectively to growth concerns,” RBI added.
Economists do not expect RBI to cut its policy repo rate on Tuesday. Nearly half of them forecast that it would cut the cash reserve ratio.
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