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Context
RBI signal: Policy support to growth can be discounted for now. Government must ease path for private investment
What has happened?
Reserve Bank of India has decided keep key policy rates unchanged
Decision of Monetary Policy Committee
The Monetary Policy Committee chose to maintain a “neutral” policy stance, projecting a relatively higher inflation of 4.3 to 4.7 per cent in the next two quarters while going with the earlier GVA (Gross Value Added) estimate of 6.7 per cent for FY 18, taking into account the upward pressure on food and fuel prices
Rationale for the decision
- Oil prices: The MPC and other analysts reckon that oil prices, already at well over $50 a barrel, may sustain, with the risk of a negative impact on margins of companies and, in turn, on growth
- Food prices: Food prices, too, were high in October, especially perishables like vegetables, though this should moderate in the winter months
- RBI’s own survey of households, indicates a firming up of inflation expectations in the year ahead and the risks arising from global financial instability because of fiscal expansion in the US and monetary policy normalisation in advanced economies
- The RBI says it has seen an uptick in credit growth in October and expects demand to rise in the next two quarters, with its own industrial outlook survey indicating a pick-up in the third quarter
Conclusion
With the government and the RBI readying to fortify banks with more capital, there could be a recovery down the line. But the wait may be longer than what many had projected at the start of this fiscal
