The tone of the RBI policy shows keeping inflation in check would be a priority for RBI, over reviving growth.
The Reserve Bank of India’s forecast of 5.7 percent GDP growth for FY14 is much lower than the 6 percent plus targets of set by the government and private agencies.
The central bank is penciling in only a modest improvement in economic activity this year. It also said that it would attempt to limit inflation to 5 percent this year, "using all instruments at its command."
The tone of the statement shows keeping inflation in check would be a priority for RBI, over reviving growth.
Repeating what the macro economic report released Thursday, the RBI said it had "little space" for cutting interest rates as it tries to maintain a balance between growth and inflation.
"During 2013-14, economic activity is expected to show only a modest improvement over last year, with a pick-up likely only in the second half of the year," the RBI said in its policy document.
“The outlook for industrial activity remains subdued, with the pipeline of new investment drying up and existing projects stalled by bottlenecks and mplementation gaps. With global growth unlikely to improve significantly from 2012, growth in services and exports may remain sluggish,” the RBI said.
On inflation, the RBI feels imported inflation would be lower this year as globally, crude oil and food prices are likely to be stable or even soften a bit. But back home, higher food prices due to supply side issues, and increase in coal, electricity and diesel prices could put upward pressure on inflation.
"Indicators of corporate performance, industrial outlook and PMIs are pointing to a declining pricing power. On the other hand, food inflation is likely to be a source of upside pressure because of persisting supply imbalances," the RBI policy said.
"Also, the timing and magnitude of administered price revisions, particularly of electricity and coal, will impact the evolution of the trajectory of inflation in 2013-14," the RBI said.