Do it yourself

The Reserve Bank of India (RBI) made its last policy statement for the current fiscal year FY22. The statement is unambiguous on all four key issues: 1.    The inflation is likely to peak in the current quarter and fall to the RBI’s tolerance range from next quarter onward. 2.    The overall growth has recovered to the pre-pandemic level, but private consumption is lagging. The risks to the growth are on the downside and 2HFY23 growth should moderate to ~4.5%. 3.    The Monetary Policy Committee (MPC) is unanimously of the view that in view of the present growth vs inflation dynamics, there no case for a hike in the policy rates. 4.    The growth recovery is fragile and requires monetary policy support. Hence, MPC has decided to keep the policy stance accommodative by a majority vote of 5 to 1, as was the case in the previous two policy statements. This accommodative stance of the RBI in total defiance of th...

The Monetary Policy Committee of the RBI has been consistently facing the growth vs inflation challenge for past three years at least. However, the conditions have become significantly more challenging and complicated for the MPC in the recent months. Hence, in the past couple days MPC may not have spent much time on resolving the growth vs inflation conundrum. Since, the issue of adding to monetary stimulus is no longer part of the current agenda, the MPC deliberations might have been pinned around three issues – 1.    How to pace the liquidity normalization so that it does not hurt the fragile recovery? 2.    When to begin hiking policy rates? 3.    How to manage the large government borrowing? Price stability may certainly have received some attention. But notwithstanding what the prime minister may have claimed in the Parliament, the MPC might have expressed helplessness in controlling the price volatility, especially the prices...

The first Monetary Policy Committee (MPC) of RBI met for the last time during 4 to 6 August 2020. To commemorate the end its four year term, the Committee thankfully did not take any populist decision. It prudently kept the policy rates unchanged, as I had wished for (see To cut or not to cut is not the question ), and focused on mitigation of stress caused by the economic lockdown due to spread of COVID-19. In line with the stand taken by the government, the MPC refrained from issuing growth and inflation estimates. However, the governor's statement makes the following things clear: (a)    Inflation, especially food & energy inflation, is a matter of serious concern at present and development on this front need to be watched carefully; though the governor expressed hope that as the monsoon progressed well and base effect comes into play, the food inflation will ease in 2HFY21 leading the headline inflation below the MPC target range. It is pertinent to note that for...

The three day periodic review meeting of the Monetary Policy Committee of RBI started yesterday. The Committee may review the monetary policy of RBI, in light of (i) the prevalent macroeconomic conditions-   especially inflation, fiscal balance, growth outlook; (ii) working of the financial system, e.g., liquidity situation, financial stress, credit off take, etc.; (iii) the global economic developments; and (iv) the assessment of economic shock in the aftermath of the pandemic. The market participants are mostly focused on the monetary stimulus, which the MPC may propose, especially cut in the policy repo rate. Besides, the market will be watching out for the RBI stance on further extension of the debt moratorium; targeted credit for weaker sections; relaxation to the bank and non bank lenders from provisioning norms; inflation outlook and growth outlook. In my view— 1.     Any cut in policy repo rate at this stage will be most...