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Fiscal slippage remains a risk for rate cut: Report

IANS  |  New Delhi 

While concerns of liquidity, coupled with declining inflation, may have prompted the industry to expect a rate cut in RBI's Committee (MPC) meeting from February 7, fears of fiscal slippage may turn out to be a spoiler, a report said.

"There is a high likelihood of a change in RBI stance from 'calibrated tightening' to 'neutral' with a possible rate cut in the next MPC meeting. Fiscal slippage, however, continues to be a risk for rate cut," said in its report on Thursday.

Though the government maintains confidence in meeting the 3.3 per cent fiscal deficit target for this fiscal, the deficit in the first eight months till November stands at Rs 7.17 lakh crore, or 114.8 per cent of the Rs 6.24 lakh crore full year's target.

Ahead of the RBI's review, India Inc on Thursday urged the (RBI) to cut its interest rate and the cash reserve ratio (CRR) to infuse liquidity in the and boost growth.

In a meeting with RBI Shaktikanta Das, who will preside over his first MPC meeting on February 7, leading industry chambers also suggested various measures to ease the ongoing liquidity crunch and reduce the high cost of credit.

has predicted that CPI over the next three months to inch up from the current levels, but will remain in the range of RBI's forecast, which is 2.7 per cent to 3.2 per cent.

The double digit food during 2008-14 was tamed to mid-single digits over the last four years owing to easing agri-imports in a declining global agri-commodity price environment and steady yield improvements, it said.

The report, however, mentioned that in the last three months, food has turned negative and that its study indicates a build-up of excess supply in several (pulses, fruits and vegetables, sugar, milk etc.) exerting price pressure.

"Liquidity challenges have also adversely impacted economic activity, as per our channel checks," it added.

The report also takes note of liquidity challenges in the rural saying the low does have calming impact on the overall inflation, but a sustained low inflation regime can also lead to adverse impact on rural income and can be a cause of social unrest, it warns.

--IANS

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, January 17 2019. 20:06 IST
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