The change of regime in the finance ministry has raised hopes of an economic stimulus package. Despite RBI's hawkish stance on inflation, the industry has been hopeful that the central bank would cut rates in its policy review in end-July. However, RBI's latest pronouncements in its Fiscal Stability Report seem to indicate that chances of a rate cut have not improved in the last few days.
"On the domestic front, slowing growth, elevated inflation and large fiscal and current account deficits are serious concerns. The already high fiscal deficit leaves little room for the government to stimulate the economy. The current account deficit is being increasingly financed by debt flows, threatening long-term sustainability," said D Subbarao in his foreword to the report released on Thursday. Later in the report, RBI said "Recent trends in terms of an elevated ratio of revenue deficit to gross fiscal deficit and the increasing proportion of revenue expenditure relative to capital outlays are also disquieting. Gross financing needs of the government remain high with consequent impact on private investment and growth."
Edited By Cen Fox Post Team
