The Reserve Bank of India ( RBI) said the Indian economy is likely to grow below its projection of 7.6% this fiscal, and is likely to revise downward the forecast in its policy review next month.
RBI Governor D Subbarao said while addressing an event here that the targeted growth may not be achieved on account of several factors such as high inflation and the depreciating rupee.
The central bank is likely to revise downwards its gross domestic product (GDP) projection in its 3rd quarter review of monetary policy on January 24, during which it will come out with revised forecast for year-end inflation.
In October, it had cut the GDP growth forecast for 2011-12 to 7.6%, from 8%.
Earlier this month, the government lowered its full-year growth forecast to between 7.25% and 7.75%, down from 9% projected in February.
Mr Subbarao said the macroeconomic situation is a cause of concern, as growth is declining, inflation is stubbornly high and rupee is weakening.
After 13 interest rates hikes since March 2010, the RBI had paused the rate hike cycle in its policy review on December 16. The overall inflation was still at an elevated level of 9.11% in November.
There are risks to inflation, Subbarao said, adding that high oil prices and the sudden depreciation in rupee pose challenges for the economy.
The rupee has depreciated 18% against the US dollar so far this year. It is hovering at 52.65 per dollar.
Mr Subbarao said market forces would continue to determine the rupee level and RBI will intervene only if there is a sharp volatility. He said the course of exchange rate movement could change if the European markets improve.