RBI rules out monetary stimulus, says inflation still high

Ahead of its third quarterly policy review on January 29, the Reserve Bank of India (RBI) has said inflation is still high and there is no room for fiscal or monetary stimulus to boost growth in slowing economy.

With industrial output (IIP) contracting by 0.1 per cent in November, the industry has stepped up its demand for interest rate cut by RBI in its forthcoming policy.

Economic growth, which slipped to a nine-year low of 6.5 per cent in 2011-12, is expected to decline further to 5.7-5.9 per cent in the current financial year.

"When growth is slowing down you can stimulate the economy either by monetary easing or by fiscal stimulus, but both monetary and fiscal side have no room for stimulus. So that is the big concern," RBI Governor D Subbarao said while addressing IIM students in Lucknow on Tuesday evening.

Although inflation, based on movement in wholesale prices, touched a three-year low of 7.18 per cent in December, retail inflation continued to remain in double digit at 10.56 per cent. It only indicates that easing WPI was not providing any relief to the consumers from spiralling prices.

Notwithstanding expectations of interest rate cut on the back of declining inflation, Subbarao said: "Inflation has come down, (it is) still high".

The WPI inflation at 7.18 per cent was also much above the central bank's comfort level of 4-5 per cent. Inflation has not declined to the expected levels despite tight monetary stance pursued by RBI to check price rise.