RBI warns of further impact of slowdown
Our Bureau Mumbai, Jan. 26 The Reserve Bank of India has warned of a 'second-order' impact of the economic slowdown on the real sector. In its Third Quarter Review of Macroeconomic and Monetary Developments released on Monday, on the eve of its quarterly monetary policy announcement, the RBI said unlike in the advanced countries where the contagion spread from the financial to the real sector, in India, the slowdown in the real sector is affecting the financial sector, which in turn, has a second-order impact in the real sector. "If the recession is deeper and the recovery is long drawn, as is the current expectation, emerging economies have also to contend with second round effects in the form of potential terms of trade losses, erosion of export competitiveness and restricted external financing," the central bank said. Underscoring the fact that the outlook for India, going forward is mixed, the RBI said, industrial activity, particularly in the manufacturing and infrastructure sectors, is decelerating. In the coming months, the services sector too, which has been the prime engine of growth for the last five years, will slow, mainly in the construction, transport and communication, trade, hotels and restaurants sub-sectors. The review said "the balance of risks on the growth outlook is tilted towards downside". The central bank based its contention on further moderation in economic activity for 2008-2009 by pointing to the Survey of 13 Professional Forecasters. The survey placed the median forecast of real GDP growth for 2008-2009 at 6.8 per cent, lower than the earlier forecast of 7.7 per cent. At present, according to the RBI, the indications are that the global downturn may be deeper and more protracted than expected earlier. However, the RBI said while the downside risks would be extending to the future, the fall in commodity, including oil prices, and the coordinated fiscal and monetary stimulus are expected to revive the growth momentum. The central bank has also identified positive factors including an expected increase in consumption demand mainly reflecting rise in basic exemption limits and tax slabs, the Sixth Pay Commission awards, debt waiver for farmers and pre-election expenditure. The consumption expenditure is also expected to improve in the medium-run due to changing pattern of demographic profile in India. According to the RBI, the wholesale price index based inflation, which has fallen sharply from an intra-year peak of 12.9 per cent on August 2, 2008 to 5.6 per cent by January 10, 2009, points to a faster than expected reduction in inflation. http://www.thehindubusinessline.com/2009/01/27/stories/2009012751500100.htm ekamber --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
