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.

Comments

Popular posts from this blog

Khar’s experimentation with Himalayan nettle brings recognition (downtoearth)

Nature never fails to surprise us. In many parts of the world, natural resources are the only source of livelihood opportunities available to people. They can be in the form of wild shrubs like Daphne papyracea and Daphne bholua (paper plant) that are used to make paper or Gossypium spp (cotton) that forms the backbone of the textile industry.

Nothing can compete with the dynamism of biological resources. Recently, Girardinia diversifolia (Himalayan nettle), a fibre-yielding plant, has become an important livelihood option for people living in the remote mountainous villages of the Hindu Kush Himalaya.

There is a community in Khar, a hamlet in Darchula district in far-western Nepal, which produces fabrics from Himalayan nettle. The fabric and the things made from it are sold in local as well as national and international markets as high-end products.

A Himalayan nettle value chain development initiative implemented by the Kailash Sacred Landscape Conservation and Development Initiati…

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 it in …

Cloud seeding

Demonstrating the function of the flare rack that carries silver iodide for cloud-seeding through an aircraft. 
Water is essential for life on the earth. Precipitation from the skies is the only source for it. India and the rest of Asia are dependent on the monsoons for rains. While the South West Monsoon is the main source for India as a whole, Tamil Nadu and coastal areas of South Andhra Pradesh get the benefit of the North East Monsoon, which is just a less dependable beat on the reversal of the South West Monsoon winds.