Skip to main content

A surprise from the RBI

In its third quarter review of monetary policy, the Reserve Bank of India sprang a big surprise by hiking the policy repo rate by 0.25 percentage points to 8 per cent. All other rates — the bank rate, the
reverse repo and the marginal standing facility rates — stand adjusted upwards. Unprepared as the financial markets might have been to the hike, the central bank’s justification is unassailable. In the mid-quarter review on December 18, 2013, the rates were kept unaltered, anticipating a cool-off in vegetable prices. With the subsequent fall in food prices, especially of vegetables, headline inflation has fallen significantly and might stay subdued well into the next round of data compilation. However, excluding food and fuel prices, CPI inflation has remained stubbornly high while core WPI inflation has risen, although only marginally. As RBI Governor Raghuram Rajan said subsequently, behind its logic has been the CPI inflation which remains close to 10 per cent and is the prime cause for the hardening inflation expectations among consumers. Besides, there is evidence to show that notwithstanding the tight monetary policy, aggregate demand pressures are still exerting upward pressure on overall inflation. A rate hike is justified, though the growth momentum is weak and there has been much fiscal tightening in the last quarter of this year.
The other important development has been the release of the Urjit Patel committee’s report which has suggested that price stability should be the primary objective of monetary policy and towards that end CPI inflation should be brought below 8 per cent by January 2015 and below 6 per cent by the following year. Formal inflation targeting has not been adopted yet, but clearly the central bank’s increased reliance on the CPI is evident in its hiking the repo rate to firmly nudge the economy towards the recommended path of price stability. The Governor has emphasised that in the long run there is no conflict between its two traditional objectives of supporting growth and maintaining price stability. Unless inflation is brought down there cannot be a revival in either consumption or investment. Further policy steps will be data dependent but if the disinflationary process evolves as projected, any more tightening in the near term is not anticipated. The economy will grow at slightly below 5 per cent this year, but can firm up to 5.5 per cent in a range of 5 to 6 per cent in 2014-15. A pick-up in investment and stronger export performance might push up growth rates further. The external situation remains uncertain — global economic growth has been uneven and emerging economies have been under pressure in recent months.
Labels:

Comments

Post a Comment

Popular posts from this blog

SC asks Centre to strike a balance on Rohingya issue (.hindu)

Supreme Court orally indicates that the government should not deport Rohingya “now” as the Centre prevails over it to not record any such views in its formal order, citing “international ramifications”. The Supreme Court on Friday came close to ordering the government not to deport the Rohingya. It finally settled on merely observing that a balance should be struck between humanitarian concern for the community and the country's national security and economic interests. The court was hearing a bunch of petitions, one filed by persons within the Rohingya community, against a proposed move to deport over 40,000 Rohingya refugees. A three-judge Bench, led by Chief Justice of India Dipak Misra, began by orally indicating that the government should not deport Rohingya “now”, but the government prevailed on the court to not pass any formal order, citing “international ramifications”. With this, the status quo continues even though the court gave the community liberty to approach i...
3 comments
Click Here To Read more »

"ISRO has capabilities to build geostationary satellites for air quality monitoring” (downtoearth)

Pawan Gupta's findings on trans-boundary movement of pollution (Punjab to Delhi) from biomass burning in 2015 spurred debates. He participated in discussions with Indian regulators early September at the Better Air Quality Conference in Busan on the advantages of using satellite data for air quality monitoring. He explains to Down to Earth how air quality monitoring is done using satellite data. How is satellite data used to measure air pollution? Satellites that provide information on atmospheric pollutants are normally (not always) in the low earth orbits (400-1000 km above the Earth’s surface). A single satellite can carry one or more remote sensing instruments onboard that look down to earth and obtain information about the object in the field of view of satellite sensor. The Earth receives electromagnetic radiation from the sun, which travels through space and reaches the earth-atmosphere system. The radiation then interacts with the Earth’s atmosphere and the surface...
1 comment
Click Here To Read more »

What's ailing Namami Gange programme?(DTE)

Winters are extremely hectic for Sushma Patel, a vegetable grower in Uttar Pradesh’s Chunar town. Her farm is in the fertile plains of Ganga where people grow three crops a year. But this is the only season when she can grow vegetables. And before that, she needs to manually dig out shreds of plastic and wrappers from her one-hectare (ha) farm. “This is all because of the nullah,” she says, pointing at an open drain that runs through her field, carrying sewage from the neighbourhood to the Ganga. “Every monsoon, the drain overflows and inundates the field with a thick, black sludge and plastic debris. We cannot even go near the field as the stench of sewage fills the air,” she says. But Patel has no one to complain to as this is the way of life for most people in this ancient town. About 70 per cent of the people in Chunar depend on toilets that have on-site sanitation, such as septic tanks and pits. In the absence of a proper disposal or management system, people simply dump the faec...
3 comments
Click Here To Read more »