Macroeconomic and Monetary Developments : Second Quarter Review 2012-13
-Announced on 29th October 2012 by RBI
Markets respond to reform measures
Policy reforms measures have improved market sentiments, strengthening the equity prices and rupee exchange rate. However, there is need for steps to revive the sluggish primary capital market, so that financing constraints for corporate investments are reduced.
G-sec yields were range bound, though with a softer bias, reflecting improved liquidity conditions. Gains for the bond markets have been limited due to concerns about the likely fiscal slippage during the year.
The Reserve Bank’s House Price Index (HPI) show that house prices increased further during Q1 of 2012-13 in almost all cities. Transaction also picked up in most cities after a fall in the preceding quarter.
Inflation remains on a sticky path, warranting caution
Inflation has stayed sticky around 7.5 per cent. Persistent non-food manufactured product inflation, despite the growth slowdown has emerged as a concern.
Consumer price inflation continues to be above the inflation in wholesale price index. This divergence is observed even for ex-food and fuel components of the two indices.
Wage pressures remain persistent, though the year-on-year increase in rural wages moderated from 22 per cent in August 2011 to 18 per cent in August 2012. In organised sector, growth in staff costs was about 17 per cent in 2011-12 and maintained about the same pace in Q1 of 2012-13.
While the near-term inflation risks are on the upside, inflation is expected to moderate from Q4 of 2012-13. However, improved supply responses and moderation of wage inflation is vital for bringing down inflation to comfort level.
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