RATES CUTS NOT LIKELY SOON
The Reserve Bank of India left its key policy rates unchanged today, although it cut the Statutory Liquidity Ratio by 100 bps to 23% (seen mostly as a symbolic gesture as most banks hold much more liquidity in government bonds voluntarily). The RBI however slashed growth estimates for the current fiscal much below the Government's estimates to 6.5% and raised the fiscal year end inflation forecast to 7%.
INFLATION: PRIORITY NUMBER 1
Reading today's statement in conjunction with the one in June, one gets the sense that the RBI has become even more resolved in its fight against inflation. The reasons that prompt the Reserve Bank to take this extreme steps include a deficit monsoon which is expected to push WPI further in coming months. The RBI is concerned about growth and external risks, but it also sees numerous inflation risks, including pass through from rupee depreciation, outlook for food inflation due to a poor monsoon, and continued demand stimulus coming from fiscal subsidies. Moreover, despite slowing growth, the central bank sees no discernible easing of demand for protein rich food products, nor does it see persisting supply side bottlenecks easing anytime soon. The risk for inflation to remain elevated, therefore, is considerable.
DONT BLAME THE RBI FOR THE SLOWDOWN
While cutting India's fiscal GDP growth target to 6.5% the Reserve Bank defended its hawkish monetary stance and categorically mentioned that factors other than policy steps have led to the growth slowdown (hinting at government inaction) and cutting rates may not necessarily spur growth.
The Reserve Bank of India left its key policy rates unchanged today, although it cut the Statutory Liquidity Ratio by 100 bps to 23% (seen mostly as a symbolic gesture as most banks hold much more liquidity in government bonds voluntarily). The RBI however slashed growth estimates for the current fiscal much below the Government's estimates to 6.5% and raised the fiscal year end inflation forecast to 7%.
INFLATION: PRIORITY NUMBER 1
Reading today's statement in conjunction with the one in June, one gets the sense that the RBI has become even more resolved in its fight against inflation. The reasons that prompt the Reserve Bank to take this extreme steps include a deficit monsoon which is expected to push WPI further in coming months. The RBI is concerned about growth and external risks, but it also sees numerous inflation risks, including pass through from rupee depreciation, outlook for food inflation due to a poor monsoon, and continued demand stimulus coming from fiscal subsidies. Moreover, despite slowing growth, the central bank sees no discernible easing of demand for protein rich food products, nor does it see persisting supply side bottlenecks easing anytime soon. The risk for inflation to remain elevated, therefore, is considerable.
DONT BLAME THE RBI FOR THE SLOWDOWN
While cutting India's fiscal GDP growth target to 6.5% the Reserve Bank defended its hawkish monetary stance and categorically mentioned that factors other than policy steps have led to the growth slowdown (hinting at government inaction) and cutting rates may not necessarily spur growth.
No comments:
Post a Comment