"One cannot
conceive anything so strange and so implausible that it has not already been
said by one philosopher or another."
—Rene Descartes (French,
1596-1650)
Word
for the day
Fanfaronade (n)
Bragging; Bravado; Bluster.
Malice
towards none
Yogi ji gives 15days to his
officers, to chalk out a comprehensive strategy for improving business climate
in the state of UP!
Bullock cart gets a Ferrari
engine.
First random
thought this morning
Syria is a true reflection of the acute leadership crisis prevailing
in the world. The traditional global powers, i.e., US, UK, Germany, France, and
Russia continue to be bogged down by their domestic issues. Japan refuses to
get over its WWII guilt. China is making little effort to gain acceptance as
global leader.
India is too fragile to lead an act in a foreign land. The
Nehruvian legacy of Panchsheel and Non-alignment also prevents us from
asserting in cases of human rights violations in other parts of the world.
The question is whether we are drifting towards a disintegrated
world, where regional issues dominate the geo-political agenda, leading to
emergence of multiple conflict zones, much like 16-17th century Europe.
MPC declares demon of DeMo dead and burried
The monetary policy committee of RBI seems unanimously
positive on economy. The committee sees the risk to global growth receding
rather precipitately.
The committee noted that "indicators
of global growth suggest signs of stronger activity in most advanced economies
(AEs) and easing of recessionary conditions in commodity exporting large
emerging market economies (EMEs). In the US, high frequency data indicate that
the labour market, industrial production and retail sales are catalysing a
recovery in Q1 of 2017 from a relatively subdued performance in the preceding
quarter. Nonetheless, risks to higher growth have arisen from non-realisation
or underachievement of macroeconomic policies. In the Euro area, the
manufacturing purchasing managers’ index (PMI) rose to a six-year high in March
amidst improving consumer confidence and steadily strengthening employment
conditions. In the Japanese economy, nascent signs of revival are evident in
the form of falling unemployment, improving business sentiment on fixed
investment, and rising exports helped by the depreciation of the yen; however,
deflation risks linger."
The committee also noted that "For
EMEs, the outlook is gradually improving, with indications that the slowdown
characterising 2016 could be bottoming out. In China, supportive macroeconomic
policies, surging credit growth and a booming property market have held up the
momentum of growth albeit amidst concerns about financial stability and capital
outflows. In Brazil, hardening commodity prices are providing tailwinds to
reforms undertaken by the authorities to pull the economy out of recession,
although financial fragilities remain a risk. Russia is benefiting from the
firming up of crude prices and it is widely expected that growth will return to
positive territory in 2017."
The committee highlighted that
inflation is edging up in advanced economies on the back of slowly diminishing
slack, tighter labour markets and rising commodity prices.
With few exceptions like Turkey
and South Africa, the inflationary pressures have eased in emerging markets.
Consequently, "Global trade volumes are finally showing signs of
improvement amidst shifts in terms of trade, with exports rising strongly in
several EMEs as well as in some AEs whose currencies have depreciated."
On the domestic front, the key noting
of the committee are as follows:
(a) In FY17, agriculture expanded robustly year-on-year after two
consecutive years of sub-one per cent growth. However, in the industrial
sector, there was a significant loss of momentum across all categories, barring
electricity generation. The services sector also slowed, pulled down by trade,
hotels, transport and communication as well as financial, real estate and
professional services. Nonetheless there are several indicators that point
towards modest improvement in the macroeconomic outlook.
(b) The 77th round of the Reserve Bank’s industrial outlook survey
indicates that overall business sentiment is expected to improve in Q1 of
2017-18 on the back of a sharp pick up in both domestic and external demand.
Coincident
indicators such as exports and non-oil non-gold imports are indicative of a
brighter outlook for industry, although the sizable under-utilisation of
capacity in several industries could operate as a drag on investment.
Activity
in the services sector also appears to be improving as the constraining effects
of demonetisation wear off.
(c) The 77th round of the Reserve Bank’s industrial outlook survey
indicates that pricing power is returning to corporates as profit margins get
squeezed by input costs.
(d) Balance of payments data for Q3 indicate that the current account
deficit for the first three quarters of the financial year narrowed to 0.7 per
cent of GDP, half of its level a year ago. For the year as a whole, the current
account 5 deficit is likely to remain muted at less than 1 per cent of GDP.
(e) Foreign direct investment (FDI) has dominated net capital inflows
during April-December, with manufacturing, communication and financial services
being the preferred sectors.
(f) Headline CPI inflation is set to undershoot the target of 5.0 per
cent for Q4 of 2016-17 in view of the sub-4 per cent readings for January and
February. For 2017-18, inflation is projected to average 4.5 per cent in the
first half of the year and 5 per cent in the second half. The upside risks to
inflation forecast stems from the uncertainty surrounding the outcome of the
south west monsoon in view of the rising probability of an El Niño event around
July-August, and its implications for food inflation.
(g) GVA growth is projected to strengthen to 7.4 per cent in 2017-18
from 6.7 per cent in 2016-17, with risks evenly balanced.
(h) Significant improvement in transmission of past policy rate
reductions into banks’ lending rates post demonetisation should help encourage
both consumption and investment demand of healthy corporations.
The committee stressed that along
with rebalancing liquidity conditions, it will be the Reserve Bank’s endeavour
to put the resolution of banks’ stressed assets on a firm footing and create
congenial conditions for bank credit to revive and flow to productive sectors
of the economy.
The committee noted that the
transmission of policy rate cuts done in past has accelerated in recent months.
However, the committee felt that further scope for a more complete transmission
of policy impulses remains, including for small savings/administered rates.
In consistency with the neutral
stance of monetary policy, the committee unanimously decided to keep repo rate
unchanged at 6.25%, and narrow the liquidity adjustment facility window by
raising reverse repo rate by 25bps to 6%.
The next meeting of the MPC is
scheduled on June 5 and 6, 2017.
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