[ad_1]
Express News Service
MUMBAI: Hold on! This has been the mantra of the Reserve Bank of India (RBI), not with respect to rates, but its stance on monetary policy, which has been neutral since February 2017.
This is probably the most long period that the RBI has remained neutral, "by allowing itself the opportunity to make rate hikes or decreases at will.The disadvantage is that it shows uncertainty in monetary policy forecasts and could even delaying investment decisions
The six-member Monetary Policy Committee has only one job: to badess economic variables and to forecast its policy direction for the rest of the world. reconciling (implying rate cuts) or hawkish (consecutive increases) It may remain neutral, but doing so for long periods of time only creates uncertainty
From a point of view policy, the policy of the month of August is perfect It is a blow for the NDA government, which should call for early elections, at any time. Hiking later, in a downward path of inflation, could also be difficult, coming just before the holiday season and the busy credit season. Economists in favor of loitering favor a rise of 25 basis points, total inflation being higher than 4%, the underlying inflation remains constraining (with increased risks of rising SMP). ), weakening the Rupee, and the output gap coming closer and could spur inflation.
The other side believes that it is not necessary to rush for another hike. Although underlying inflation has peaked, it will relax later, if not sooner; economic activity has improved, but more because of the normalization of demo and GST-related disruptions than the recovery. Finally, the Rupee being overvalued, a wait and see approach is needed
The job of the RBI is to provide just the right amount of money for the prices to remain stable. Underlying inflation has increased over the last six months, but it is not due to demand, and partly to weak base and rising input prices. The central bank only changes the key rates when inflation is due to excessive monetary growth and it is transitory.
Food inflation is generally high up to 2% in June and July. For example, according to a RBI study (on a sample of 184 months), the monthly inflation rate was very volatile, sometimes reaching 20 to 30% on an annualized basis. But after the seasonal adjustments, the annual inflation rate was often smoother than the monthly series
Similarly, the real rates (adjusted repo rate for projected inflation) are around 160 bps, not very much far from 175 bps. In summary, current macroeconomic conditions do not warrant rate hikes, but clarity on future developments, particularly if the MBM is favorable to tightening bias or not, is highly justified.
Source link
