A cau­tious RBI hints at go­ing for a sta­tus-quo

The Political and Business Daily - - FRONT PAGE -

FACED with an un­sta­ble ru­pee, el­e­vated re­tail in­fla­tion and un­cer­tain global eco­nomic con­di­tions, the Re­serve Bank to­day said it will fol­low a cau­tious mone­tary stance, with fo­cus on sta­bil­is­ing the do­mes­tic cur­rency and con­tain­ing the cur­rent ac­count deficit.

Hint­ing at a sta­tus-quo in to­mor­row's pol­icy re­view, the RBI, in its Macroe­co­nomic and Mone­tary De­vel­op­ments First Quar­ter Re­view 201314, said, "The pri­or­ity for mone­tary pol­icy now is to restore sta­bil­ity in the cur­rency mar­ket so that macro-fi­nan­cial con­di­tions re­main sup­port­ive of growth."

The strat­egy, it said, will suc­ceed only if re­in­forced by struc­tural re­forms to re­duce the CAD and step up sav­ings and in­vest­ment.

"Am­pli­fy­ing macro­fi­nan­cial risks war­rant cau­tious mone­tary pol­icy stance," the RBI said, adding it will en­deav­our to ac­tively man­age liq­uid­ity to re­in­force mone­tary trans­mis­sion that is con­sis­tent with the growth-in­fla­tion bal­ance.

Presently, the short­term lend­ing (repo) rate, or the rate at which RBI lends to banks, is at 7.25 per cent, while the cash re­serve ra­tio (CRR) is at 4 per cent.

A ma­jor­ity of RBI watch­ers ex­pect the pol­icy to be a "no show" event, but are look­ing for­ward to the guid­ance which Gover­nor D Sub­barao will give in the quar­terly pol­icy an­nounce­ment, which would be the last be­fore he demits of­fice in early Septem­ber.

A sur­vey of ex­ter­nal pro­fes­sional fore­cast­ers done by the RBI in­creased its me­dian ex­pec­ta­tion on the value of the ru­pee to 59.5 to the dol­lar by March 2014 - about the same level at which the do­mes­tic cur­rency cur­rently trades. This com­pares with the ear­lier ex­pec­ta­tion of 54.

On the growth front, the RBI raised con­cerns, say­ing that the re­cov­ery is likely to be slower.

"Growth is ex­pected to im­prove as the year pro­gresses, but re­cov­ery is likely to be slow," the RBI said.

The na­tion's eco­nomic growth touched a decade low of 5 per cent in the last fis­cal on ac­count of a de­cline in the man­u­fac­tur­ing and agri­cul­ture sec­tors.

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