London: Pegging India's economic growth at 7.6 percent for the current fiscal, Paris-based think-tank OECD on Monday said persistently high inflation is limiting the room to ease monetary policy stance to spur the economy. Agencies
In its latest Economic Outlook, OECD projected the Indian economy to expand 7.6 percent in 2011-12. According to the report, the country grew at 8.8 percent in the last fiscal.
"A recovery in global activity and the associated boost to Indian export demand, as well as improving domestic sentiment, are not expected to support a marked pick-up in growth until late 2012," the report noted.
A larger-than-anticipated fall in external demand or protracted weakness in the domestic sentiment could lead to a sharp slowing in growth.
"Even though the economy is slowing, persistent high inflation limits the room to relax monetary policy stance. It would be prudent to wait for clear signs that inflation is falling back to more comfortable levels, which is not expected until late 2012, before reducing interest rates," it said.
The Organisation for Economic Cooperation and Development is a 34-member grouping of mostly advanced economies.
OECD said in the coming months, delayed pass-through of higher international oil prices and recent rupee depreciation would contribute to price pressures.
"Although continued high inflation would threaten the Reserve Bank of India's credibility and damage longer-term growth prospects by harming confidence and inhibiting investment, the current global environment suggests weakening inflation pressures," it added.
Headline inflation has been above the 9 percent-mark since December. It stood at 9.73 percent in October.
The RBI has hiked interest rates 13 times since March, 2010, to tame demand and curb inflation.
"To support monetary policy disinflation efforts, the government needs to adhere to its strategy to reduce the deficit by constraining spending growth," OECD noted.
As per its projections, India would see a growth of 7.7 percent growth in 2011, way below 9.9 percent expansion witnessed last year.
London: Pegging India's economic growth at 7.6 percent for the current fiscal, Paris-based think-tank OECD on Monday said persistently high inflation is limiting the room to ease monetary policy stance to spur the economy.