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Mid-Quarter Monetary Policy Review 2011-12: December 2011
-Announced on the 16th December 2011 by Dr. D. Subbarao, Governor, Reserve Bank of India


Global growth for 2011 and 2012 is now expected to be lower than earlier anticipated. Increased strains in financial markets on the back of growing concerns over euro area sovereign debt, limited monetary and fiscal policy manoeuvrability, high unemployment rates, weak housing markets and elevated oil prices are all contributory factors. These factors have also contributed to moderating growth in the EMEs. As a consequence of all-round slower growth, inflation has also started declining, both in advanced countries and EMEs.

On the domestic front, agricultural prospects look promising on the back of expected record kharif output and satisfactory progress on rabi sowing. However, industrial activity is moderating, driven by deceleration in investment, which is a matter of serious concern. Overall, the growth momentum in the economy is clearly moderating. Further, considering the global and domestic macroeconomic situation, the downside risks to the Reserve Bank’s growth projection, as set out in the SQR, have increased significantly.

Between the First Quarter Review (FQR) and the SQR, while non-oil commodity prices had declined significantly, the rupee too had depreciated sharply. Consequently, the headline inflation projection at 7 per cent for March 2012, as set out in the FQR, was retained in the SQR. With moderation in food inflation in November 2011 and expected moderation in aggregate demand and hence in non-food manufactured products inflation, the inflation projection for March 2012 is retained at 7 per cent.

The Reserve Bank will make a formal numerical assessment of its growth and inflation projections for 2011-12 in the third quarter review of January 2012.


While inflation remains on its projected trajectory, downside risks to growth have clearly increased. The guidance given in the SQR was that, based on the projected inflation trajectory, further rate hikes might not be warranted. In view of the moderating growth momentum and higher downside risks to growth, this guidance is being reiterated. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth.

However, it must be emphasised that inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces. Also, the rupee remains under stress. The timing and magnitude of further actions will depend on a continuing assessment of how these factors shape up in the months ahead.

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First Quarter Review of the Monetary Policy for 2011-12....Click Here

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