Accommodative monetary policy breathing space or breeding risks for emerging markets
Key Highlights of the Sixth Bi-Monthly Monetary Policy · RBI maintained an accommodative policy...
Transcript of Key Highlights of the Sixth Bi-Monthly Monetary Policy · RBI maintained an accommodative policy...
Key Highlights of the Sixth Bi-Monthly Monetary Policy Announcement 2015-16
RBI maintained an accommodative policy stance in its policy review today on weakening global
growth expectations, fall in global demand due to recession in commodity exporting countries and
lower growth in China as well as domestic economy. In line with expectations, the RBI maintained
status quo on key policy rates at the sixth bi-monthly policy review.
* Repo Rate -
Key Observations & Rationale
l In the two months from the last policy announcement, RBI noted that global growth has slowed,
with the weakening economic activity in major emerging market economies (EMEs) outweighing
the recovery in some developed economies (Des). World trade has remained subdued, held
down by anaemic demand, new lows in commodity prices and currency realignments.
Unchanged at 6.75%
* Reverse Repo Rate - Unchanged at 5.75%
* Cash Reserve Ratio - Unchanged at 4.00%
* Bank Rate - Unchanged at 7.75%
l On the domestic front, economic activity lost momentum in Q3 of 2015-16 due to muted
agricultural and industrial growth. In the first two months of Q3 of 2015-16, industrial activity
slowed compared to previous quarter reflecting weak investment demand with low capital goods
production growth. Stalled projects take-off still remained lower than expected perhaps on the
back of low capacity utilization.
l While revenue growth in manufacturing has been modest, the fall in costs owing to decline in
commodity prices and improvements in manufacturing efficiency have resulted in relatively
stronger profitability. Construction activity is tepid which is evident in weak growth of cement
production but the pick-up in road construction is positive signal.
l Retail inflation (CPI) rose for the fifth month in December. RBI sounded out the flip side of
implementing the 7th Pay Commission recommendations would result in inflation going up for
the next one to two years. RBI’s target of 5% CPI inflation for January 2017 will be under
pressure on 7th Pay Commission recommendation implementation.
CIN: U65991MH1994PLC080811
567679
Interest Rate Outlook
l The current momentum of growth is reasonable, though below medium term expectations. There
is a need to rekindle the underlying growth drivers to place the economy durably on a higher
growth trajectory. The revival of private investment would be critical, especially as the climate for
business improves and fiscal policy consolidation happens.
l The Indian economy is currently being viewed as a beacon of stability because of the steady
disinflation, a modest current account deficit and commitment to fiscal rectitude. This needs to
be maintained so that the foundations of stable and sustainable growth are strengthened.
CIN: U65991MH1994PLC080811
567679
l The RBI continues its accommodative stance while awaiting further data on the inflation front
before acting further. Structural reforms expected in the forthcoming Union Budget that boost
growth while controlling spending will create more space for monetary policy easing, while also
ensuring that inflation remains on the projected path of 5 per cent by the end of 2016-17.