As the MPC is mandated to target CPI inflation rate at 4 plus minus 2 per cent, any measurement error in CPI is likely to have grave consequences for monetary policy.
Technical Advisory Committee was for status quo in policy rate on little hope of government action.
The Reserve Bank of India (RBI) on Friday decided to leave the benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance, implying rate cuts in the future if need arises to support the economy hit by the Covid-19 pandemic.
Finance Minister Nirmala Sitharaman has said the recent interest rate hike by the Reserve Bank was not surprising for her but the timing was, asserting that the rising cost of funds will not impact the government's planned infrastructure investments. For the first time since August 2018, RBI had on May 4 delivered a blunt 40 basis points increase in key repo rate to 4.40 per cent, and also hiked the cash reserve ratio by 50 basis points to 4.5 per cent after an unscheduled meeting of the rate setting panel, citing increased inflation pressures following the Ukraine war and the resultant spike in crude oil prices. Retail inflation printed at 6.9 per cent in March and the April reading is forecast to top 7.7 per cent.
If the concerns over risking political capital are overcome, the long-term gains for the Indian economy will be immense, asserts A K Bhattacharya.
There is a narrow chance that the central bank may cut rates in the future, according to a poll of 15 economists and treasurers.
After consumer price index jumped the 6.3-per cent mark in May and wholesale inflation set a record of 12.94 per cent, house economists at Swiss brokerage UBS Securities have warned that the country is facing more upside risks on the inflation front that is set to averaging at 5 per cent for the year. Rising prices of edible oils and protein rich items pushed retail inflation to a six-month high of 6.3 per cent in May, breaching the comfort level of the Reserve Bank and thus rendering reduction in interest rates a difficult proposition in the near term. Led by petrol price, that has crossed the Rs 100-mark in many states, wholesale inflation too accelerated to a record 12.94 per cent in May. While crude oil has crossed $70 a barrel on account of rising prices of crude oil and manufactured goods due to spike in commodities, and the low base of last year due to the lockdown.
While efforts are being mounted on a war footing to arrest its spread, COVID-19 will impact economic activity in India directly through domestic lockdown. The second-round effects, it said, would operate through a severe slowdown in global trade and growth.
Fed keeps rates unchanged, sets up possible December hike
Rating agencies Crisil and Icra on Monday revised down their India growth projections for the current fiscal and the second quarter mainly due to the ripple effect of slowdown in global growth and mixed crop output. Crisil downgraded the India growth forecast by 30 bps to 7 per cent while Icra pegged the economic expansion at 6.5 per cent for the second quarter of FY2022-23. "We have revised down our forecast for real gross domestic product growth to 7 per cent for fiscal 2023 from 7.3 per cent, primarily because of the slowdown in global growth that has started to impact our exports and industrial activity.
Lower inflation, FCNR(B) outflows likely to influence central bank decision
The RBI governor-designate may be economical with spoken words, but is known for his sharp and critical writings
'We are very watchful about inflation and growth. But the main challenge is economic revival and growth.'
Chances of a rate cut in April improve if core inflation continues to ease, growth falling below the projected 7.2% for FY19 and if the global trade slowdown exacerbates.
The central bank tweaked the retail inflation range to 4.8-4.9 per cent in the first half of 2018-19, and 4.7 per cent in the second half.
Common use products like hair oil, soaps and toothpaste will be charged with a single national sales tax or GST of 18 per cent instead of present 22-24 per cent
By no means do economists see the Reserve Bank of India stop at just a 25-bp cut. Some of the economists such as Soumyakanti Ghosh of State Bank of India are of the firm view that rates have room to fall by a total of 75 bps in the current financial year, starting with 25 bps in the August 7 policy.
'The no-rate cut policy and preference to wait for the Budget and clarity on the fiscal front demonstrate RBI Governor Shaktikanta Das is maturing in his new role,' notes Tamal Bandyopadhyay.
North Block and Mint Road seem likely to now stick to the earlier convention of the RBI governor coming to Delhi and being the only MPC member meeting the finance minister and senior bureaucrats on pre-policy meetings
There is nothing wrong with government and RBI having conflicting opinions.
A V Rajwade wonders if the Modi sarkar is pursuing price stability at the cost of potential social instability in both rural and urban India.
A day after BRICS (Brazil, Russia, India, China and South Africa) nations agreed on a $100-billion foreign currency reserve pool to tackle the volatile foreign exchange markets, India on Friday said the pool would act as a buffer arrangement, adding it might not withdraw anything from this reserve.
It is time for the three finance ministers of the 1990s to reveal the real hero, says T C A Srinavasa-Raghavan.
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Industry's demand for a reduction in the repo rate, currently 8 per cent, has gained momentum after wholesale and retail inflation eased in February.
A host of factors including the reform measures taken by the government and decline in global oil and commodity prices have led to lower inflation, the Finance Ministry said on Wednesday.
'People know if inflation is not within the tolerance band, then action will be taken so they do not expect inflation to rise above that.'
Relying on the private sector to undertake infrastructure investment may not be a realistic proposition.
Infrastructure and inflation targeting are expected to be top priorities for the new Reserve Bank of India governor, says A V Rajwade.
Finance minister Arun Jaitley has delivered a Arun Jaitley delivered a bold, far sighted budget
'There are deeper, underlying, forces at work and we need institutional arrangements to guard against them.'
However, it may still not change its stance on the policy rate as inflationary pressures are coming from high commodity prices.
Despite admitting to price pressures both from food items and input prices, RBI Governor Shaktikanta Das on Wednesday hoped that a normal Southwest monsoon will have a "soothing impact" on inflation pressures and ruled out any wide variations in medium-term inflation forecast from what was given in April. In an unscheduled address earlier in the day amidst the raging pandemic, Das said the overall outlook for the economy is highly uncertain and is clouded with downside risks. He offered a slew of relief and liquidity measures to individuals and small businesses apart from a Rs 50,000 crore special liquidity window to the healthcare sector.
HDFC Bank was the top loser in the Sensex pack, falling 2.99 per cent, followed by Adani Ports at 2.87 per cent.
The government has no plan to print currency notes to tide over the current economic crisis triggered by the outbreak of COVID-19 pandemic, Finance Minister Nirmala Sitharaman informed Parliament on Monday. To a question on whether there is any plan to print currency to tide over the crisis, the finance minister said, "No Sir". Many economists and experts have suggested to the government to print more currency notes to tide over the difficult economic situation with a view to support the economy ravaged by the spread of COVID-19, and protect jobs.
During the month, inflation in vegetables shot up to 35.99 per cent, as against 26.10 per cent in October. Likewise, the prices of cereals and eggs grew at a faster pace of 3.71 per cent.
The Reserve Bank (RBI) resisted a 'raid' planned by some in the government to extract Rs 2-3 lakh crore from its balance sheet in 2018 to meet populist spending in run-up to general elections, Viral Acharya, who was deputy governor at RBI at that time, has written.
It's crucial for Modi to make India an easier place to do business.
As he projected a grim outlook for the economy, RBI Governor said that amidst this encircling gloom, agriculture and allied activities have provided a beacon of hope on the back of an increase of 3.7 per cent in foodgrains production to a new record.
In the Sensex pack, M&M was the biggest loser, tumbling by 6.66 per cent, followed by TCS dropping 4.14 per cent.
Currency scarcity weighed on manufacturing performance where growth of new work flows slowed
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