India's central bank pegs inflation at 5%, growth at 7.6%

The Reserve Bank of India (RBI) on Tuesday retained the country's growth target at 7.6 per cent for this fiscal and predicted the retail inflation to ease to around 5 per cent, as its Monetary Policy Committee concluded its maiden, two-day meeting here.

"On balance, the committee envisages a trajectory taking headline consumer price index inflation towards a central tendency of 5 per cent by March 2017, with risks tilted to the upside," said the panel, as the short-term lending rate was cut by 25 basis points.

"The projection of growth of real gross value added (GVA) for 2016-17 also is retained at 7.6 per cent, with risks evenly balanced around it," the committee said, referring to the new measure now for growth -- which, unlike gross domestic product (GDP), excludes subsidies and taxes.

The panel's projection on inflation was based on its reading that a strong improvement in sowing, along with supply management measures, will improve the food inflation outlook. It also said that the government also took several measures to ease inflation pressures, especially in pulses.

"This has opened up space for policy action, as indicated in the third bi-monthly monetary policy statement," it said.

"The committee took note of potential cost push pressures that may emerge, including the 7th Pay Commission award on house rent allowances and the increase in minimum wages with possible spillovers through minimum support prices," it added.

Data on the consumer price index had showed that the annual retail inflation had eased by 100 basis points to 5.05 per cent in August.

The target inflation rate has been set at 4 percent -- plus or minus 2 percentage points. Against this, India's central bank retained the inflation projection of 5 per cent by March 2017 with risks tilted to the upside.

--IANS

bc/ap/vt