The Reserve Bank of India’s first bi-monthly monetary policy statement is the last such before national elections and the formation of a new government. Obviously, monetary policy will have to be dovetailed with the new government’s policies, especially fiscal policy. The interregnum is not particularly conducive to major monetary policy announcements. However, even while playing it safe on certain key ongoing initiatives — for instance, the award of new bank licences has been referred to the Election Commission by way of abundant caution — the central bank has perforce to address monetary policy issues that cannot be postponed. The policy statement, it has been emphasised, is an economic and regulatory statement and ought not to be viewed through the prism of contemporary politics. The decision to hold policy rates was widely anticipated and, as is to be expected, based on a critical assessment of macroeconomic factors, both within India and outside. Since January, economic growth in the developed economies has moderated. For India and a number of developing economies, renewed volatility of capital flows and tightening of external financing conditions are the biggest threats. While sticking to its inflation and GDP growth forecasts, the RBI has warned of upside risks to inflation and downward risks to growth.

On inflation, the risks to the central forecast of 8 per cent CPI inflation by January 2015 stem from a less-than-normal monsoon, uncertainty in the setting of minimum support prices, the outlook for fiscal policy and the possibility of higher commodity prices. The monetary policy stance will be firmly focussed on keeping the economy in a disinflationary path towards a CPI inflation of 6 per cent by January 2016. GDP growth is projected to pick up from a little below 5 per cent in 2013-14 to the central estimate of 5.5 per cent, in a range of 5 to 6 per cent in 2014-15. However, there are no tangible signs of a sustained revival in industry and services as yet. Clearing of stalled projects and a pick-up in export growth as the world economy gains traction should brighten the outlook. Elaborating on the developmental and regulatory policies outlined earlier, the key recommendations of the Urjit Patel Committee’s report that have been implemented include the adoption of the new CPI as the key inflation measure, and a transition to a bi-monthly policy cycle. For banks, the transitional period for full implementation of Basel III capital regulations has been extended by a year to March 31, 2019. It is proposed to make inflation-linked savings bonds more investor-friendly. A wealth of information on non-monetary policy measures are found in this bi-monthly monetary policy statement, and hopefully that will become the norm.

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