 "Cautious move: Stuart Milne")
The Reserve Bank of India (RBI)'s policy meeting was uneventful in terms of its action on the rate front. The central bank kept the policy rate unchanged, as expected.
On the external front, the central bank took note of the uneven recovery in the global economy. While it believes that accommodative monetary policy has calmed global financial markets, it still saw risks due to possible mistiming of US monetary policy reversal. On the domestic front, RBI believes the cautious optimism that has set into the economy needs to be put on a more solid foundation through a step-up in investment. On inflation, the trajectory of food prices in the future and the timing and magnitude of administered price revisions are the main source of uncertainty to an otherwise improving inflation outlook, where lower oil prices, a relatively stable currency, and a negative output gap continue to put downward pressure on inflation.
The central bank's forward guidance reflected its cautious stance on inflation. It noted future policy stance will be influenced by its projection of inflation relative to its medium-term target. On the balance front, RBI believes that the risks to achieving its medium-term Consumer Price Index (CPI) target of six per cent are on the upside. We think the central bank is likely to retain its current monetary policy stance for the foreseeable future, while the government plays a stronger role in boosting growth and de-bottlenecking supply-side constraints. Eventually, this may pave the way for gradual monetary policy easing.
On the external front, the central bank took note of the uneven recovery in the global economy. While it believes that accommodative monetary policy has calmed global financial markets, it still saw risks due to possible mistiming of US monetary policy reversal. On the domestic front, RBI believes the cautious optimism that has set into the economy needs to be put on a more solid foundation through a step-up in investment. On inflation, the trajectory of food prices in the future and the timing and magnitude of administered price revisions are the main source of uncertainty to an otherwise improving inflation outlook, where lower oil prices, a relatively stable currency, and a negative output gap continue to put downward pressure on inflation.
The central bank's forward guidance reflected its cautious stance on inflation. It noted future policy stance will be influenced by its projection of inflation relative to its medium-term target. On the balance front, RBI believes that the risks to achieving its medium-term Consumer Price Index (CPI) target of six per cent are on the upside. We think the central bank is likely to retain its current monetary policy stance for the foreseeable future, while the government plays a stronger role in boosting growth and de-bottlenecking supply-side constraints. Eventually, this may pave the way for gradual monetary policy easing.
Stuart Milne
Group General Manager & CEO, HSBC India
Group General Manager & CEO, HSBC India