RBI set to maintain tight monetary policy

Mumbai, June 4:

India’s central bank is likely to keep monetary policy tight in the coming months to tame prices after the economy expanded at a faster-than-expected 9.4 per cent in the year to March, analysts said.

While key interest rates, at a four-year high of 7.5 per cent, may remain stable, analysts said the Reserve Bank of India (RBI) will ask banks to set aside more cash as reserves in order to cut the amount available to lend for homes, cars and other goods, in order to cool the economy and prices.

Inflation in India has declined from levels well above six per cent earlier this year to a ten-month low of 5.06 per cent for the week ended on May 19, official data showed. But that is still above the central bank ‘tolerance zone’ of 4.5 to five per cent. “Inflation easing is largely due to the base effect,” economist D K Joshi of rating agency Crisil said. “We expect the RBI to maintain a stance of tightening monetary policy. Growth has been strong. It needs to ease demand side of prices.”

The faster-than-expected growth reported last week means the central bank and the government may revise upwards forecasts of 8.5 to nine per cent growth for the year started April.

“We expect firmness in growth to continue into fiscal year 2008. If strength in credit growth and industrial production numbers is reflected in the first quarter, we could revise upwards our GDP growth forecast of 8.2 per cent,” said Manika Premsingh, an economist. India’s industrial production grew by a record 12.9 per cent in March, from the same month a year earlier, with April data to be released this month.

Trade deficit up

NEW DELHI: India’s trade deficit nearly doubled in April, the first month of the financial year, from a year ago as costs for imported oil jumped. The trade deficit widened to $7.06 billion in April 2007 from $3.94 billion in April 2006 led by a jump in the cost of oil imports of 11.4 per cent in the same period to $4.42 billion. India imports nearly two thirds of its petroleum needs. Exports in April rose by 23.1 per cent to $10.58 billion, but the gain was offset by imports of $17.64 billion, a jump of 41 per cent. — AFP