Ahead of the RBI's monetary policy review scheduled on September 16, the Federation of Indian Export Organisations (FIEO) Thursday said that the apex bank should reexamine its policy to use monetary measures to tame inflation. FIEO President Ramu S Deora said in a press statement that India should take a cue from Brazil which has actually reduced repo rates notwithstanding inflation which is also beyond its comfort zone. "This is also substantiated by UNCTAD which lay emphasis that the policy to control inflation was to rely on an income policy that aims to check inflationary pressures instead of on a monetary policy," he added. FIEO Chief stated that economic slowdown is expected to continue if RBI continues to raise interest rates in the hope of reigning in inflation which stood at around 9.22 percent, well above the RBI's target rate of 4 percent to 4.5 percent. India's economy grew 7.7 percent in the the first quarter of the current fiscal, compared with the same period of 2010 and it was the weakest for the last six quarters. Ate present, gross fixed capital formation is at its lowest ebb at 7.9 percent y-o-y lower than 11.9 percent a year ago and as a result of increasing input costs the pace of industrial growth slowed to 5.1 percent y-o-y from 6.1 percent in the previous quarter. "Construction slumped to 1.2 percent, agricultural GDP slowed to 3.9 percent but these figures were offset by growth in services at 10 percent y-o-y. Situation on the global front is equally grim.The pace of global recovery has been slowing down in 2011. Global GDP is expected to grow by 3.1 percent as reported by UNCTAD, following an increase of 3.9 per cent in 2010," FIEO added. Deora said that despite the slowing momentum of growth, prices continue to rise unabated and one can anticipate an aggravated decline in growth momentum as a result of lagged impact of interest rate hikes bulk of which came in June and July.
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