The monetary and banking regulator, Reserve Bank of India, has hinted that due to rising inflation and increasing shortage of current account, implementing interest rate reductions may be difficult. Its comments come just a day before it is scheduled to release its quarterly monetary policy review.
It has said in its report titled, Macroeconomic and Monetary Developments, "Given the preponderance of non-monetary factors behind the current slowdown in an environment where risks from high inflation, current account and fiscal deficits still remain, the scope for supportive monetary policy action is constrained."
Though the central bank is also keeping this alternative open and has said that if the government's fresh economic reforms "show up fully and definitely" it might be reasonable for the monetary policy review to focus on growth.
Talking about the fresh economic reforms initiatives, RBI said, "(they) have reduced immediate risks, but there is a long road ahead to bring about a sustainable turnaround for the Indian economy. Business sentiments remain weak despite reform initiatives and consumer confidence is edging down."
Referring to inflationary conditions in the economy, it said, "suppressed inflation continues to pose a significant risk to the inflation in 2013-14. As some of the risks materialises, inflation path may turn stick."