The Reserve Bank of India in its latest monetary policy review on Wednesday identified three major factors -- that have been -- and will be impacting your household bill..
The Reserve Bank of India in its latest monetary policy review on Wednesday identified three major factors — that have been — and will be impacting your monthly household bill. The Monetary Policy Committee, which kept the repo rate unchanged at 6% to limit the inflation at 4%, said the risks to inflation needs to be carefully managed, and identified crude oil, fiscal slippage, and global geopolitical uncertainty as factors that are going to add momentum to the prices.
Food prices stable; crude oil to push prices
In August, the surge in food prices led to higher inflation. However, the central bank said that the domestic food price outlook remains stable, but prices of other items may go up. The RBI said that momentum is building in prices of items other than food, emerging due to crude oil. “Although the domestic food price outlook remains largely stable, generalised momentum is building in prices of items excluding food, especially emanating from crude oil,” the central bank said.
The RBI said that fiscal slippage on account of slow economic growth and a possibility of fiscal stimulus that the government might provide to boost growth, would also lead to hike in prices. “The possibility of fiscal slippages may add to this momentum in the future,” the RBI said. The RBI’s observation comes on the back of higher fiscal deficit which has touched 96.1% of the Budget estimates in the first five months (April-Aug) of FY18.
Global geopolitical uncertainty
The MPC said the CPI inflation has risen by around two percentage points since its last meeting in August. The committee said the price pressures had coincided with global geopolitical escalation and magnified volatility in the international financial markets. “The MPC observed that CPI inflation has risen by around two percentage points since its last meeting. These price pressures have coincided with an escalation of global geopolitical uncertainty and heightened volatility in financial markets…. Such juxtaposition of risks to inflation needs to be carefully managed,” the RBI said.
The MPC also said that various structural reforms introduced in the recent period will likely be growth augmenting over the medium- to long-term by improving the business environment, enhancing transparency and increasing formalisation of the economy. The RBI, in August, had raised concerns over the farm loan waiver by seven states amounting to Rs 88,000 crore, which the central bank said, would push the inflation on a permanent basis by 0.2%.
Five of the MPC members voted for no change in the repo rate. Dr Chetan Ghate, Dr Pami Dua, Dr Michael Debabrata Patra, Dr Viral V. Acharya, Dr Urjit R Patel were in favour of no change in the repo rate, while Dr Ravindra H Dholakia voted for a policy rate reduction of at least 25 basis points.
As India’s economic growth slumped to a three-year low of 5.7% in the first quarter of the FY18 due to demonestisation and the switch to the GST regime, many economists called for a rate to cut to boost growth, however, according Reuters poll of 60 economists, the “lacklustre growth and inflation hovering below the RBI’s 4% medium-term target” was not be enough to drive the RBI into action.