Wednesday, August 05, 2015

RBI's call on uncertainty

Yet another monetary policy review by RBI took place on Tuesday, the 4th of August. RBI schedules most of its monetary policy reviews on Tuesdays.

Policy rates and Reserve Ratios remain unaffected. Inflation expectations by households (three-month ahead and one-year ahead) are inching up. This could be one of the key factors that precluded reduction in policy rates. After all, it is not a secret that expectations by households are more realistic than those by professionals.

What was surprising was the Governor's optimism on reduction in uncertainty.
" Significant uncertainty will be resolved in the coming months, including the likely persistence of recent inflationary pressures, the full monsoon outturn, as well as possible Federal Reserve actions."

Don't we know that no sooner that one uncertainty is resolved, than another one readily crops up? For example, the declining trend in oil prices may see a drastic reversal if and when the IS takes over some oil fields.

The Governor also made a debatable comment on merits of a committee. According to him, the proposed Monetary Policy Committee will come under less external and internal pressure than the Governor. Really?
Committee's independence depends on its members. If most of the members are nominated by the government, it is self-delusional to expect the Committee to be really independent.

It appears that the Governor prefers an 'accommodative stance' towards the government.

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