Reserve Bank of India
India - Macroeconomic Situation
Assessment and Prospects
Indian Merchants’ Chamber
Mumbai
June 19, 2012
Dr. Duvvuri Subbarao
Governor
Reserve Bank of India
1
India
Macroeconomic Situation
Cause for Concern?
2
India - Macroeconomic Situation
Trends in Growth Rate
Long-Term Trend
Recent Trend
10.0
10.0
8.7
9.0
9.5
8.0
7.5
9.6
9.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
8.5
5.6
8.0
Percent
Per cent
6.2
7.5
7.0
6.5
6.5
6.0
5.5
5.0
3
India Growth Story
What drove India’s growth in
the pre-crisis period and what
explains the current
moderation?
4
What is the inflation story?
Year-on-Year Inflation Rates
11
9
5
3
1
WPI - Headline
Apr/12
Jan/12
Oct/11
Jul/11
Apr/11
Jan/11
Oct/10
Jul/10
Apr/10
Jan/10
-2
Oct/09
per cent
7
WPI- Non-food Manufactured Products
5
Moderation in WPI not transmitted to CPI
Year-on-Year Inflation Rates
11
9
8
7
WPI - Headline
May/12
Apr/12
Mar/12
Feb/12
6
Jan/12
per cent
10
CPI (New)- Combined
6
What is driving Inflation?
• Food (structural)
• Fiscal deficit
• Demand pressures
• Commodity prices + depreciation
7
What has RBI done
to control inflation?
8
Has RBI succeeded in
controlling inflation?
9
Has RBI’s tight monetary
policy hurt growth?
10
9
18
4
8
3
6
2
4
1
2
0
0
Growth in Private Fixed Capital Formation (Right Scale)
2011-12
10
2010-11
5
2009-10
12
2008-09
6
2007-08
14
2006-07
7
2005-06
16
2004-05
8
Growthin Private Fixed Capital Formation
(Per cent)
Real Weighted Average Lending Rate and
Growth in Private Fixed Capital Formation
2003-04
Real Weighted Average Lending Rate
(Per cent)
Is it the high interest rate that is
inhibiting investment?
Real Weighted Average Lending Rate (Left Scale)
11
If inflation is caused by
supply side pressures, is tight
monetary policy an
appropriate response?
12
What is required to revive
growth?
13
How much has the rupee
depreciated and why?
Month-wise Trend in Rupee-dollar Exchange Rate
and REER 6 Currency
30
120
118
116
114
40
45
110
REER
112
108
50
106
104
55
102
May-12
Apr-12
Mar-12
Feb-12
Jan-12
Dec-11
Nov-11
Sep-11
Aug-11
Oct-11
REER 6 Currency (RHS)
June 2012 (so far)
Rs/US$
Jul-11
Jun-11
100
May-11
60
Apr-11
Rs per US$
Nominal Exchange Rate
35
14
What is causing rupee
depreciation?
15
Is the rupee depreciation entirely due to
global factors?
Depreciation/Appreciation of BRICS Currencies
(June 12, 2012 over End-July 2011)
.
5.0
1.0
0.0
Per cent
-5.0
-10.0
-15.0
-16.2
-20.0
-20.6
-25.0
-20.7
-24.4
-30.0
Brazilian Real
South African Rand
Chinese Yuan
Russian Ruble
Indian Rupee
16
What has RBI done to contain
the movement in the exchange
rate?
17
What is RBI’s policy on
exchange rate?
18
What drives the exchange
rate?
19
Why 2012 is not 1991?
20
Is there a new normal for
inflation?
21
Has India’s potential
growth rate declined?
22
What are the risks to the growthinflation outlook?
23
Is the “India Growth Story”
still credible?
24