ANOTHER RATE HIKE AHEAD

Signaling another hike in CRR...Reserve Bank of India Governor Raghuram Rajan said that his priority will be to contain Inflation...With seven more days to go for the next monetary policy review, his comment assumes significance...

Inflation is proving very costly to our economy in terms of savings, in terms of investment. We need to bring inflation down.... No single data or point or number will determine our next move, but our effort is firmly on controlling inflation, Rajan exhorted. The Reserve Bank of India (RBI) hiked key interest rates by 0.25 per cent each in the last two reviews to tame inflation. The next mid-quarterly policy review is scheduled for December 18.Rajan further said the central bank will take steps to improve liquidity situation, especially in the government securities (G-Sec) market. 

Economy would grow about 5 per cent in this financial year while the current account deficit would be below 3 per cent of GDP.

"We are seeing some glimmerings of stronger growth. But it's too early to say we have certainly hit bottom. But I am hopeful that we should be around 5 per cent," RBI Governor Raghuram Rajan told reporters on the sidelines of the Delhi Economic Conclave here. In October, the RBI lowered the economic growth forecast for the current financial year to 5 per cent from 5.7 per cent projected earlier. The economy expanded 4.8 per cent in the second quarter of 2013-14, pulling up GDP growth in the first half to 4.6 per cent. The economy has to expand 5.4 per cent in the second half to clock 5 per cent growth in the full financial year. Rajan said India is ready for the withdrawal of monetary stimulus by the US Federal Reserve. The reversal of the easy money policy by the US is expected to impact global markets as well as the economy. "We are much better prepared to deal with any possible tapering. We would not say we are complacent. There would be unexpected effects of tapering, but we are much better prepared. We have a stronger (forex) reserve position. We have shown we can raise money if needed. And our CAD is significantly lower this year," he said. The current account deficit (CAD), which is the excess of foreign exchange outflows over inflows, rose to a record of 4.8 per cent of gross domestic product (GDP) in 2012-13 from 2.8 per cent in 2010-11. "The CAD, by every estimate, it's below 3 per cent this year. We are in a much better position. It will be below 3 per cent," Rajan said. Following measures taken by the government and the RBI to increase inflows and restrict gold imports, the CAD moderated to 3.1 per cent of GDP in the first half of this financial year. It was at 4.5 per cent in the first half of 2012-13. Finance Minister P Chidambaram had earlier said the CAD will be brought down to USD 56 billion or less, from USD 88.2 billion in 2012-13.