First it was growth, then wholesale price inflation, then retail prices, then the current account deficit and now, in his last monetary policy review before retiring on September 4, Duvvuri Subbarao is expected to say the monetary policy stance is pegged to rupee stability, no matter the doddering economy.
Tuesday would be the Reserve Bank of India (RBI) governor’s his last chance to win the market’s confidence, but Subbarao is expected to stand pat on signoff eve.
In the macroeconomic and monetary development report released on Monday, the RBI said that the priority for monetary policy is to restore stability in the currency market. This would ensure that macro-financial conditions remain supportive of growth.
Referring to the liquidity tightening measures unleashed in the past two weeks, the RBI said that the immediate impact has been “rupee positive.” Data shows rupee appreciated by 2% since the first round of measures were put into force.
The central bank was mum about the impact these measures had on the short-term money market where interest rates spiked and bond yields surged.
While these measures have kept rupee from falling past 60 per dollar levels, the RBI is of the view that they may only provide some breathing space and strategy would succeed if reinforced by structural reforms to reduce the current account deficit and step up savings and investment.
The RBI is expected to maintain status quo on Tuesday. This was evident from the report released on Monday that flagged inflationary pressures arising out of recent rupee depreciation and upward revisions in fuel prices. The RBI said that there were upside risks to both wholesale as well as retail price inflation.
In terms of growth, the central bank noted that there was no evidence yet of recovery in growth even as headline inflation had moderated. The Professional forecasters’ survey conducted by the RBI revised the growth projection for current fiscal downwards to 5.7% from 6% as expected in May.
While growth concerns may keep the RBI from further tightening or reversing the policy stance, inflationary pressures may not allow it to reduce rates either. The central bank may opt to wait it out on Tuesday and act only when rupee shows some stability.
The RBI said that the global currency market movements in June-July 2013 had prompted a re-calibration of monetary policy. Going forward, the central bank aims to actively manage liquidity to reinforce monetary transmission that is consistent with growth-inflation balance and macro-financial stability.
Tuesday would be the Reserve Bank of India (RBI) governor’s his last chance to win the market’s confidence, but Subbarao is expected to stand pat on signoff eve.
In the macroeconomic and monetary development report released on Monday, the RBI said that the priority for monetary policy is to restore stability in the currency market. This would ensure that macro-financial conditions remain supportive of growth.
Referring to the liquidity tightening measures unleashed in the past two weeks, the RBI said that the immediate impact has been “rupee positive.” Data shows rupee appreciated by 2% since the first round of measures were put into force.
The central bank was mum about the impact these measures had on the short-term money market where interest rates spiked and bond yields surged.
While these measures have kept rupee from falling past 60 per dollar levels, the RBI is of the view that they may only provide some breathing space and strategy would succeed if reinforced by structural reforms to reduce the current account deficit and step up savings and investment.
The RBI is expected to maintain status quo on Tuesday. This was evident from the report released on Monday that flagged inflationary pressures arising out of recent rupee depreciation and upward revisions in fuel prices. The RBI said that there were upside risks to both wholesale as well as retail price inflation.
In terms of growth, the central bank noted that there was no evidence yet of recovery in growth even as headline inflation had moderated. The Professional forecasters’ survey conducted by the RBI revised the growth projection for current fiscal downwards to 5.7% from 6% as expected in May.
While growth concerns may keep the RBI from further tightening or reversing the policy stance, inflationary pressures may not allow it to reduce rates either. The central bank may opt to wait it out on Tuesday and act only when rupee shows some stability.
The RBI said that the global currency market movements in June-July 2013 had prompted a re-calibration of monetary policy. Going forward, the central bank aims to actively manage liquidity to reinforce monetary transmission that is consistent with growth-inflation balance and macro-financial stability.
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