Hope of a rate cut

In its monetary and macroeconomic development report, RBI has raised hopes of a rate cut but also flagged some challenges

• Economic growth in 2012-13 might fall below the projected 5.8%

 

• The inflation rate might moderate to under the projected 7.5% but suppressed inflation risk would persist over 2013-14

 

• The average Wholesale Price Index (WPI) -based inflation might moderate from 7.5% in 2012-13 to 7% in 2013-14.

 

• The inflation path over 2013-14 might face downward rigidity

 

• After a record high of 5.4% of gross domestic product in the second quarter, the current account deficit might further widen in the third

 

• A likely significant shortfall in tax revenue could prove a challenge in meeting the fiscal deficit target for the financial year

 

The government’s policy initiatives are yet to fully show up; economic revival, therefore, might take more time

 

Corporate sales growth has moderated further in the second quarter of 2012-13, to its lowest in three years but corporate net profit growth has shown a marked improvement