The Reserve Bank of India (RBI) stuck to rates in the fifth bimonthly monetary policy review Wednesday. The move was very much on expected lines. None had bargained for a rate cut considering the prolonged discomfort of the RBI with the overall price scenario in the country. The bank has also predicted an upside pressure on inflation going forward. In these columns, we had made a similar forecast last week. According to the Monetary Policy Committee (MPC), there are several factors that threatened to push up inflation in the near term. They include rising food and fuel prices, increase in input costs and implementation of farm loan waivers by a few states. It also highlighted factors such as the partial rollback of excessive duty on petroleum products both by the Centre and some select states and the decrease in revenue on account of the cut in goods and services tax (GST) rates posing dangers to the fiscal deficit target that could together push inflation. The RBI has also factored in the housing rent allowance (HRA) effect of up to 35 basis points with risks evenly balanced, following the implementation of the 7th Pay Commission recommendations for Central government employees.
Recent data showed that the country’s fiscal deficit at the end of October has hit 96.1 per cent of the budget estimate for 2017-18. This means the government has little elbowroom for raising its expenditure over the coming quarter. For 2017-18, the government has aimed to bring down fiscal deficit to 3.2 per cent of GDP. Last fiscal, it met the 3.5 per cent target it had set itself. The government would want to meet the fiscal deficit target this time, too. Therefore, the Centre has very little scope to increase spending. As a corollary to this, the government would be looking to RBI to gift a rate cut to open the floodgates of spending in the country by both the public and corporates. A major takeaway from the RBI’s latest policy statement is that the MPC may be beginning a phase of prolonged pause in the key rates for most part of 2018. This is because the central bank expects inflation to remain within range, albeit on the higher side. The dominant theme that will run through the next few policy reviews will be caution.
The RBI is primarily mandated to control inflation and to that extent it has performed its duty well. The primary focus of the bank all these months has been to tame inflation. So much so that even when inflation fell by 200 basis points in 2016-17 and the first half of 2017-18 fiscal, the RBI reduced the policy rate by only 50 bps. In retrospect, this seems to have been a prudent decision as inflation started inching up and so have inflationary expectations. This is not to say that the central bank is completely oblivious of the imperatives of growth. In the policy statement, the bank has taken note of the positive factors of the economy that could push growth in the coming quarters. They include the amount of funds raised from the capital markets, the improvement in the ease of doing business, large distressed borrowers being referred for bankruptcy proceedings and the government’s big-ticket recapitalisation programme for PSU banks. These are all positive indicators and initiatives, but they alone cannot be expected to deliver 7.8 per cent growth in just three months. The crux here is this: With persisting inflation risks, growth improving and with liquidity conditions largely comfortable in the banking system, the central bank may go on a pause mode for most part of the next year.
3,757 total views, no views today
Bhubaneswar: Ahead of Budget session of Orissa Legislative Assembly from Tuesday, ruling Biju Janata Dal and opposition BJP and Congress spent time fine tuning their respective strategies to edge out one another on the floor of the House.With a stormy … Continue reading
No views yet
Jatni: In an effort to provide sanitary napkins to female passengers at an affordable rate, an automatic sanitary napkin vending machine was inaugurated at Khurda Road railway station here Monday. The vending machine was installed in the second class female waiting … Continue reading
No views yet
Bhubaneswar: A special corporation meeting here Monday approved by a resolution on the delimitation of wards and effecting of fresh reservations. Five revenue villages have been incorporated into the existing 67 wards. After the meeting, BMC commissioner Krishan Kumar said … Continue reading
No views yet
Bhubaneswar: A day after their decision to continue, student of Ramadevi Women’s University brought traffic movement between Vani Vihar and Master Canteen route to a halt Monday by blocking the road in support of their demand to restore the autonomous … Continue reading
No views yet