RBI seeks economists' views as inflation worries persist

New Delhi: The Reserve Bank of India (RBI) on Tuesday reiterated its concerns on inflation and a widening current account deficit in a meeting with economists a week before its annual monetary policy review, according to two economists who were there.

A Reuters poll of 20 economists issued on Tuesday showed the RBI is expected to cut rates for the first time in three years to give a boost to slowing growth, although the continued risk of inflation is seen squeezing the room for rate cuts.

"Going by the risks highlighted, the monetary policy response could be muted," an economist present at the meeting told Reuters, declining to be identified because the meeting was off-the-record.

"The RBI wanted to solicit our view on the growth situation and they wanted to know the impact of a rate cut on the investment scenario," the economist said.

Investment in India has slowed in recent months, in part because of high borrowing costs after 13 interest rate increases between March 2010 and October 2011.

Last week, the RBI met with top bankers and primary dealers as part of its series of meetings ahead of its annual policy release.

India's balance of payments slipped into negative territory for the first time in three years and the current account deficit widened to $19.6 billion in the December quarter as exports slumped and imports rose.

"The RBI gave an overview of the economy, highlighting concerns to both inflation and growth, which seemed nothing different from their last policy review," said another economist who attended the meeting.

In its mid-quarter policy review in March, the central bank left rates unchanged and warned of resurgent inflation risks, a hawkish stance that disappointed investors hoping for the first rate cut since April 2009.

India's February headline inflation, which is based on the wholesale price index, picked up for the first time in five months to 6.95 per cent from a year earlier after a spike in vegetable prices fanned food inflation.

Many economists have scaled down their expectations for rate cuts this year in India, given worry about inflation and high global oil prices.