RBI Monetary Policy Review: In its latest monetary policy review released today, India’s central bank RBI said that while the global economic activity has gathered momentum, financial market volatility and potential trade wars pose a threat to outlook.
RBI Monetary Policy Review: In its latest monetary policy review released today, India’s central bank RBI said that while the global economic activity has gathered momentum, financial market volatility and potential trade wars pose a threat to outlook. Commenting on the global economy, RBI said that financial markets turned volatile in February-March on the back of uncertainty regarding the pace of normalisation of US monetary policy, and concerns surrounding global trade. “Equity markets globally have shed most of the gains of the previous quarter in a heavy sell off in February-March, caused by optimistic US job reports and the US imposition of new tariffs on Chinese goods,” RBI said.
Further, RBI noted that the anxieties surrounding a possible trade war has caused US dollar to shed most of its gains in the latter part of the month. Yesterday, the Chinese government announced plans levy import duties on U.S. soybeans, cars and airplanes, among other strategically important goods, in direct retaliation to US President Donald Trump’s protectionist policies.
Reacting on the news, the Dow Jones industrial average fell more than 500 points causing even the domestic stock markets back home, as measured by the 30-share Sensex to end more than 350 points lower. However, soon the global markets recovered after Trump’s top economic adviser Larry Kudlow said the US administration was in a “negotiation” with China rather than a trade war.
RBI says that most emerging market currencies have retreated due to the recent market volatility and the improving US economic outlook, even as investors continued to discriminate on country-specific factors. RBI also noted that global growth and trade have been strengthening, however, rising trade protectionism and financial market volatility could derail the ongoing global recovery. Given this backdrop the apex bank said that domestic macroeconomic fundamentals should be strengthened, and called for deleveraging of distressed corporates and re-building of bank balance sheets.
The central bank has kept the key policy rates unchanged for the fourth consecutive time at 6%. “The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” RBI said.