The 25 basis points repo rate cut and optimism about growth in RBI Governor Urjit Patel’s first monetary policy announcement will boost sentiments across the board.
In his first monetary policy outlook as RBI Governor, and incidentally first one also in the newly established monetary policy committee (MPC) regime, Urjit Patel has expectedly stuck to his basics of keeping what he is doing in the low-profile zone while projecting a much needed optimistic atmosphere for inflation, investment and growth.
Cutting repo rate by 25 basis points, in itself, is a strong indication that RBI’s effort in the future will be focused on supporting the government in pushing growth to a much higher level while keeping a strict vigil on the inflation trajectory.
What would please the government, industry and also the markets, all, is the outlook of the MPC. According to the RBI release: “The Committee expects that the strong improvement in sowing, along with supply management measures, will improve the food inflation outlook…. the sharp drop in inflation reflects a downward shift in the momentum of food inflation—which holds the key to future inflation outcomes—rather than merely the statistical effects of a favourable base effect”.
The committee expects that the government measures to curb inflation, especially in checking the prices of pulses, will moderate the momentum of food inflation, which has ‘opened up space for policy action, as indicated in the third bi-monthly monetary policy statement’.
But the real Urjit touch is in projecting the growth outlook of the MPC. “The momentum of growth is expected to quicken with a normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to the urban consumption spending from the pay commission’s award. The accommodative stance of monetary policy and comfortable liquidity conditions should support a revival of credit to the productive sectors,” it feels.
In short, no flamboyance, no hype, only a different way of looking at things in an optimistic manner, which may be seen by some as RBI tilting towards the government, but that would be a very simplistic way of looking at it.