1. RBI MPC cut repo rate eyeing low inflation outlook: Minutes

RBI MPC cut repo rate eyeing low inflation outlook: Minutes

The RBI could tweak the Scheme for Sustainable Structuring of Stressed Assets (S4A) guidelines, senior bankers indicated,

By: | Mumbai | Updated: October 20, 2016 6:59 AM
The minutes come from the two-day meeting on October 3-4 with all six members of the committee in attendance (PTI) The minutes come from the two-day meeting on October 3-4 with all six members of the committee in attendance (PTI)

An expectation that the effects of a good monsoon would help avert risks to the March 2017 consumer inflation target of 5% spurred the Reserve Bank of India’s (RBI) rate cut decision earlier this month, minutes from the monetary policy committee (MPC) meeting released on Tuesday showed.

The minutes come from the two-day meeting on October 3-4 with all six members of the committee in attendance. All members unanimously voted for a 25-basis-point rate cut, which was announced by the RBI on October 4.

Retail inflation as measured by the Consumer Price Index had been rising in April-July, especially on higher prices of pulses and vegetables. Since August, however, the momentum of food inflation turned negative and surprised expectations. In September, CPI fell to 4.31 %, the lowest in 13 months.

“High-frequency data embedded in our forward-looking surveys as well as daily movements in prices of fruits and vegetables, cereals and even pulses across the country gave us some confidence that the inflation target of 5% for Q4 of 2016-17 can be achieved,” RBI governor Urjit Patel said in a statement.

While there still may be cost push pressures from the Seventh Pay Commission award on house rent allowances, and the increase in minimum wages, these risks will be lower than those noted in the second and third bimonthly monetary policy statements of June and August, the MPC noted. Government measures in controlling cool food inflation pressures were also viewed as crucial in moderating the momentum of food inflation in the months ahead.

Easy liquidity conditions through central bank operations would also enable smooth transmission of the policy action through various market segments.

Banks, especially, would find added impetus for better transmission by the recent downward adjustment in small savings rates.

On the international front, the MPC noted that global growth has been slowing more than anticipated through 2016 so far, with weak investment and trade damping aggregate demand. International financial markets were especially disrupted by a surprise Brexit vote in Q2. While markets reclaimed lost ground in the third quarter, there is a continued sluggishness in world trade, causing uncertainty about the stance of monetary policy of systemic central banks.

The next meeting of the MPC is scheduled on December 6 and 7, and its resolution will be announced on December 7.

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