India's Inflation remains elevated, M3 growth moderates

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Mumbai, Mar 17 (UNI) The Asia Economics Research Group of Goldman Sachs today said that the macro economic environment in India is worsening with slowdown in growth and rise in inflation.

In a review of the current situation, the research firm said a weaker-than-expected industrial production growth of 5.3 per cent year on year in January had incMumbai, Mar 17 (UNI) The Asia Economics Research Group of Goldman Sachs today said that the macro economic environment in India is worsening with slowdown in growth and rise in inflation.

In a review of the current situation, the research firm said a weaker-than-expected industrial production growth of 5.3 per cent year on year in January had increased prospects for an early rate cut by the Reserve Bank of India.

''However, with inflation increasing there is little room to reduce rates significantly,'' it said, adding ''We therefore think the RBI will keep rates on hold at the next policy meeting on April 29.

For 2008, we expect a 50-bp easing in policy rates in response to moderating growth''.

WPI inflation continued to inch up to 5.11 per cent year on year in the week ending March one, staying above the RBI's target ceiling of five per cent for the second week in a row. The increase was primarily due to food prices. Upward pressures on food prices are not only coming from elevated global food prices and a shrinking acreage of domestic food production, but also higher manufactured food prices, it said Broad money (M3) growth fell to 21.2 per cent year on year in the fortnight ending February 29, from 21.5 per cent in the previous fortnight, as growth in the net foreign exchange assets of the banking system declined from levels in the beginning of the month, following portfolio weakness.

Deposits growth fell to 23.7 per cent in the fortnight ending February 29 from 27.3 per cent in the beginning of February. Credit growth moderated to 21.9 per cent yoy from 22.8 per cent in the same period, showing no spurt in credit growth following lending rate cuts by a few banks in February. On balance, free funds available with banks continued to fall, it said.

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