(Changes date of poll from last week to Oct. 19; changes date
MUMBAI, Oct 29 (Reuters) - India's central bank said the
government's reform efforts are a move in the right direction
but said swift implementation and further measures are needed,
and warned that inflation remains a risk, a day before it is
expected to keep interest rates on hold.
Still, the central bank's language was less hawkish than in
the recent past, as it said inflation pressure is likely to
moderate starting in the January-March quarter, a sign it may
soon be ready to ease policy interest rates after leaving them
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," the
Reserve Bank of India wrote in its review of macroeconomic and
monetary developments for the July-September quarter.
The twin deficits refer to India's fiscal and current
While most economists in a Reuters poll on Oct. 19 said they
did not expect the RBI to cut its policy repo rate
on Tuesday, nearly half forecast that it would cut the cash
reserve ratio, or the share of deposits banks must
maintain with the central bank.
The RBI said its survey of professional forecasters had
lowered its median growth forecast for the fiscal year that ends
in March to 5.7 percent from 6.5 percent previously, and lifted
its average wholesale price index inflation forecast
for the fiscal year to 7.7 percent from 7.3 percent.
"A credible fiscal consolidation strategy is now on the
anvil but needs to be backed by further measures," the RBI said.
Earlier on Monday, Finance Minister P. Chidambaram pledged
to nearly halve India's fiscal deficit by March 2017 in a bid to
avoid a credit rating downgrade and persuade the central bank to
cut rates to help the ailing economy, but offered few concrete
steps to meet the ambitious target.
Higher spending on fuel, food and fertilizer subsidies along
with sluggish tax revenues has led many economists to forecast a
fiscal deficit in the current fiscal year of about 6 percent of
GDP. Chidambaram said India's fiscal deficit would come in at
5.3 percent of GDP, up from New Delhi's earlier target of 5.1
In September, wholesale price index inflation
rose a faster-than-expected 7.8 percent from a year earlier, on
higher fuel prices, and economists expect it to remain near 8
percent for the next couple of months.
India has taken several recent measures to bolster
investment and ease its fiscal deficit, including raising the
price of subsidised diesel and easing foreign direct investment
in several industries, including supermarkets and airlines.
"The announcement of these reform measures in themselves are
not sufficient to ensure recovery as their impact would
critically hinge on successful implementation," the RBI wrote.
(Reporting by Shamik Paul and Tony Munroe)