Global cues led to neutral stance, show RBI minutes
Uncertainties related to external factors such as geo- political tension, protectionist measures and high oil prices were some of the key concerns that prompted the monetary policy committee ( MPC) to maintain a neutral stance on its policy outlook as these factors are likely to pose downside risk to domestic growth.
The minutes of the latest MPC meeting released on Wednesday showed that the members were however confident about domestic factors that were aiding the recovery process.
“Some basic uncertainties still remain on geopolitics, international trade policies and ability of some advanced economies to pursue interest rate hikes. Growing protectionism around the globe and oil prices staying high can pose genuine downside risk to our growth,” said Dr. Ravindra H. Dholakia.
While stating that there is no alternative to raising the policy rate by 25 basis points so as to signal concern about underlying inflation, manage inflation expectations, and guard proactively against a further increase in inflation, Dr Viral V. Acharya said considerable uncertainties around oil and food prices as well as the playing out of trade wars and global financial market outcomes led him to keep the stance neutral.
Most of the members expressed optimism regarding the durability of the growth recovery citing substantial improvement in capacity utilisation, growth in capital formation, buoyant sales growth and depleting inventories.
However, Dr Pami Dua highlighted the weakness in global growth that could hit Indian exports going forward.
“Quarter- over- quarter GDP growth turned negative in Japan, and declined in the Eurozone, the UK and the US in the first quarter of 2018. Also, the global manufacturing Purchasing Managers’ Index fell to a nine- month low in May, underscoring a moderating global industrial growth outlook,” she said. According to Mrs Dua, ECRI’s Indian Leading Exports Index is in a deepening cyclical downswing, suggesting that Indian export growth will remain in a cyclical downtrend at least for the next couple of quarters.