RBI had reduced the its short-term lending rate by 350 basis points in four steps since Oct 20, including a cut earlier this month, due to the global financial meltdown that hurt business sentiment and reduced demand. RBI predicted that the inflation would be significantly lower than the projected 7 pc by March. Inflation has fallen sharply from a peak of 12.9 per cent in Aug and was at 5.6 per cent in mid-Jan.
RBI said that while easing of monetary policy globally and domestically could pose an upside risk to inflation, it could be offset by falling global commodity prices, including oil. "On balance, however, the inflation outlook is tilted downwards at the current juncture," it said.
In its review of macroeconomic and monetary developments, RBI said that the significant global and domestic developments recently have rendered the outlook uncertain and have increased the downside risks associated with real GDP growth. RBI also said that a survey of forecasters in Dec had placed 2008-09 growth at 6.8 pc, down from 7.7 pc forecast three month earlier.
Though the effect of global recession is witnessed in Indian markets too, the Apex bank has aggressively cut rates and banks' cash reserve requirement since mid-Oct while the government has announced a modest fiscal stimulus to boost the economy. "While 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," RBI noted.
The Central bank said tax revenues were likely to slow, as a result of moderation in economic activity, which in turn could make attaining the budget deficit targets in the fiscal year ending March 2009 unattainable.
The government has already said that the fiscal deficit will overshoot the budget target of 2.5 pc of Gross Domestic Product (GDP) due to the extra stimulus packages announced to boost the Indian economy.
OneIndia News (With inputs from Agencies)