Moody's arm sees more monetary tightening by RBI to curb inflation , Wednesday, Jul 30 . NEW DELHI - Reserve Bank of India may not have been done with its monetary tightening cycle, U.S.-based think tank Moody's Economy.com said today. "The RBI expects inflation to moderate to 7%--a sharp upward revision from the previous estimate of 5.5%--by the end of the fiscal year. This suggests that the tightening cycle has not yet reached an end," it said. With a view to cool down demand and bring down inflationary pressures, the central bank Tuesday hiked its repo rate by 50 basis points and cash reserve ratio by 25 bps to 9% each. Including this hike, RBI has raised CRR 150 bps and repo rate by 125 bps in the current financial year so far. "Despite continued monetary tightening, lending remains robust and there are few signs of cooling. This has kept domestic demand buoyant, helping sustain economic growth amid external weakness but also contributing to inflationary pressures," Moody's Economy.com said. India's headline inflation is currently near a 13-year-high of 11.89%. The Moody's arm forecasts inflation to peak around 12% and begin to gradually decelerate in the quarter starting September. It said the current high level of inflation is driven by global supply constraints, which is not in government's control. The central bank also cut its growth forecast for the current financial year to 8.00% from 8..00-8.50%. It said growth of around 8.0% was more realistic, given that successive interest rate hikes had started to bite into demand. However, Moody's Economy.com expects India's GDP to slip below 8% in the current fiscal. "Moody's Economy.com is slightly less upbeat about India's GDP growth for the rest of the year, as economic prospects have been dampened not just by tighter monetary policy settings but also clouded by recent terrorist attacks, which hurt investor confidence," said the note. |
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