The Reserve Bank on Monday hinted at lowering interest rates saying that focus of monetary policy needs to be shifted to arrest declining growth while keeping inflation under control.
"Inflation expectations moderated in the fourth quarter of 2012-13 but remain high. With significant upside risks to inflation, monetary policy needs to keep them anchored, while shifting the balance of policy to arrest the deceleration in growth momentum," RBI said on the eve of annual monetary policy.
RBI in its Macroeconomic and Monetary Development Report also cautioned that inflation is likely to remain "sticky" at the current level through out the fiscal (2012-13).
The inflation was 6.89 per cent during March, while the growth during 2011-12 declined to three-year low of 6.9 per cent. The government, however, has pegged it at 7.6 per cent for the current fiscal.
"Monetary policy needs to support growth without risking external balance or inflation by excessive fuelling demand," it said.
Noting that inflation is under control, the report however, warns that high oil prices and suppressed inflation will still leave this at the current levels in the new fiscal and that excessive consumption demand has to be curtailed.
"The path of inflation in FY13 could be sticky with high oil prices, large suppressed inflation, exchange rate pass-through, impact of (indirect) tax hikes, wage pressures and structural impediments to supply response," the central bank report said.
