All eyes are once again on Reserve Bank’s Raghuram Rajan as he gets ready to announce year end policy on Tuesday. Leif Eskesen, Chief Economist-India & Asean, HSBC expects the RBI to maintain status quo tomorrow. However, he does not think the central bank’s tightening cycle has ended.
He says HSBC's PMI indicator has firmed to some extent and inflation is moving in the right direction - headline inflation has come down though a significant part of it is food inflation and core inflation continues to remain relatively stable, which is a problem. But disinflationary tendencies that RBI was looking at in its forward guidance as a precondition for remaining on hold last time, seems to have been fulfilled, hence maybe RBI will maintain status quo, he explains.
He says RBI’s monetary policy needs to be tighter going ahead than it is now if it wants inflation to be 6 percent or lower from 2016 onwards. He expects consumer price index or CPI to be below 8 percent by 2014-end. He expects to see some easing in core inflation, but not much. Eskesen further expects gross domestic product or GDP to be sub-5 percent in the fourth quarter of 2014.
He says HSBC's PMI indicator has firmed to some extent and inflation is moving in the right direction - headline inflation has come down though a significant part of it is food inflation and core inflation continues to remain relatively stable, which is a problem. But disinflationary tendencies that RBI was looking at in its forward guidance as a precondition for remaining on hold last time, seems to have been fulfilled, hence maybe RBI will maintain status quo, he explains.
He says RBI’s monetary policy needs to be tighter going ahead than it is now if it wants inflation to be 6 percent or lower from 2016 onwards. He expects consumer price index or CPI to be below 8 percent by 2014-end. He expects to see some easing in core inflation, but not much. Eskesen further expects gross domestic product or GDP to be sub-5 percent in the fourth quarter of 2014.
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