Bolstering growth amid risks

Bolstering growth amid risks

The Monetary Policy (मौद्रिक नीति) Committee’s decision, at its maiden meeting, to cut the benchmark repurchase (repo) rate by 25 basis points held no surprise for markets. What had been on watch was the language of the policy statement, the extent (सीमा/विस्तार-क्षेत्र/कार्य क्षेत्र की सीमा) of consensus (आम सहमति/मतैक्य) in the committee and the manner in which the new Reserve Bank of India Governor and chairman of the MPC, Urjit Patel, presented the central bank’s positions. Articulating (सुस्पष्ट तरीके से /साफ़ साफ़ बोलना) the main concern that informed the newly constituted rate-setting panel’s rationale for reducing interest rates, Mr. Patel said the global demand environment was clearly looking far bleaker (सूना/रूखा/निराशाजनक/बेरंग) than previously anticipated (प्रत्याशित /अपेक्षित) , with the forecast for world economic growth set to be downgraded further. The focus, he signaled, therefore needs to remain on supporting the domestic economy through an accommodative monetary stance (मौद्रिक दृष्‍टिकोण/मौद्रिक रुख) . That the MPC has opted to lay primacy (प्रधानता/प्रमुखता) on ‘supporting growth’ while keeping its sights firmly trained on the RBI’s central remit (छूट देना) to target a medium-term retail inflation objective of 4 per cent, within a band of plus/minus 2 per cent, bodes (संकेत करना /संकेत मिलना) well. Decision-making by committee is never easy, and given the short time the MPC had since its constitution last month, the lucidity (स्पष्टता) of the policy statement shows its six members have hit the ground running. While the minutes of the meeting — that will reveal each member’s arguments — will become available on October 18, all six voted for the rate cut. The decision reflects the broad consensus that the risks to growth from global uncertainty and financial markets volatility (उतार-चढ़ाव/परिवर्तनशीलता) remain high, especially ahead of the U.S. presidential election, and that a rate stimulus was warranted given the recent slowing in retail inflation.

Even as it expects an improvement in the outlook for food inflation on the back of increased sowing and supply management measures undertaken by the government, the MPC has been cautious (सतर्क/सावधान) in flagging the risks to the trajectory for price gains. In the panel’s opinion, the main factors that could play a contributory role in furthering a fresh ‘cost spiral’ would be the higher house rent allowances mandated by the Seventh Pay Commission, the increase in minimum wages and the possible spillovers through minimum support prices. Multiple factors augur (इंगित करना /पूर्वसूचना देना) well for the outlook for both the industrial and services sectors. But the worsening trade demand could offset the gross value added (GVA) momentum, the MPC noted, while retaining the RBI’s GVA growth forecast of 7.6 per cent. That the panel has made a decisive start to rate-setting through deliberation (विचार-विमर्श /मंत्रणा) is clear; how it weathers harsher domestic and external challenges, should they emerge, remains to be seen.

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