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Tuesday, December 02, 2014

Change in the monetary policy stance is likely early next year says RBI

RBI maintains status quo on policy rates 

The Reserve Bank of India released Fifth Bi-Monthly Monetary Policy Review on 02 December 2014 maintaining status on key policy rates. 

Monetary and Liquidity Measures
 
Repo rate unchanged at 8.0%. 

CRR unchanged at 4.0%. 

Global Economy
 
Global economy has slowed, though the recent sharp fall in crude prices will have a net positive impact on global growth. 

Indian Economy
 
Activity is likely to be muted in Q3 also because of a moderate kharif harvest. 

A rise in investment is critical for a sustained pick-up in overall economic activity. 

While low capacity utilisation in some sectors is a dampener, the recent strong improvement in business confidence and in investment intentions should help. 

The fiscal outlook should brighten because of the fall in crude prices 

GDP growth estimate for 2014-15 has been retained at 5.5%, with a gradual pick-up in momentum through 2015-16. 

Policy Stance and Rationale
 
Central forecast for CPI inflation is revised down to 6% for March 2015. 

Over the next 12-month period, inflation is expected to retain some momentum and hover around 6%, except for seasonal movements. 

Accordingly, the risks to the January 2016 target of 6% appear evenly balanced under the current policy stance. 

But, there is still some uncertainty about the evolution of base effects in inflation 

A change in the monetary policy stance at the current juncture is premature. 

If the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle. 

Next Monetary Policy Review is scheduled on 03 February 2015.
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