Mumbai: A day after lowering country's growth forecast to 5.8 per cent, the Reserve Bank on Wednesday said it will step in if economic expansion falls below the current levels of 5.5 per cent. RBI also expressed the hope that the economy will move up from the current quarter.
"We will certainly respond if growth moderates (from the present level), but that is unlikely as per our projections. We expect growth to inch up from here onwards," RBI Governor D Subbarao said to a particular query whether RBI will intervene if growth falls below the current level of 5.5 per cent.
He was answering questions during the customary post-policy conference call with economists and analysts. The economy grew by 5.5 per cent in the first quarter of the current fiscal, a tad better than 5.3 per cent it had reported in last quarter of the previous fiscal. On Tuesday, RBI had lowered its growth projection to 5.8 per cent from 6.5 per cent while unveiling the half-yearly monetary policy.
RBI also kept interest rates unchanged, disappointing Finance Minister P Chidmabaram, industry and markets. In the April policy, the RBI had cut the GDP forecast to 6.5 per cent from the 7.1 per cent it had predicted earlier.
The Governor while noting the steep fall in growth, said in the policy document, that inflation fighting is still the core objective of the monetary policy, and cited high fiscal and current account deficits as the reasons for elevated price index, thus neglecting the fiscal consolidation road map the finance minister unveiled a day before the policy. Accordingly, he also increased the year-end inflation target to 7.5 per cent, from 7 per cent, the second upward projection this year.
To another question whether there is a threshold level of growth beyond which RBI will take rate actions, Subbarao said there is no threshold for the central bank when it comes to GDP growth. "First, on the threshold growth level, we don't have any threshold growth level. But we will certainly respond should growth moderates much more than we now expect. But, that is unlikely according to our current assessment. "And you will note the GDP growth projection for the full year is 5.8 per cent. On an average, growth in the remaining three quarters have to be higher of 5.5 per cent. We expect growth to inch up from here onwards," the Governor said.
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