RBI says outlook for growth is improving gradually

Economy, Viewed [ 922 ] , Rating :
Deepak Mandal, Star Live 24
Tuesday, April 7, 2015
Published On: 14:17:35 PM

Mumbai : Reserve Bank of India (RBI) has kept  repo rate and Cash Reserve Ratio (CRR) unchanged in its first bi-monthly monetary policy of 2015-16. 

Explaining its decision to maintain status quo, the Bank said, "Transmission of policy rates to lending rates has not taken place so far despite weak credit off take and the front loading of two rate cuts. With little transmission, and the possibility that incoming data will provide more clarity on the balance of risks on inflation, the Reserve Bank will maintain status quo in its monetary policy stance in this review."

RBI has lowered repo rate twice this year from 8% to 7.5%. 

It further said ,"The outlook for growth is improving gradually. Comfortable liquidity conditions should enable banks to transmit the recent reductions in the policy rate into their lending rates, thereby improving financing conditions for the productive sectors of the economy." 

Cautioning of the weakening of exports, RBI said, "With the Indian rupee gaining in real effective terms, export margins are coming under pressure for those exporters without substantial imported inputs. Net terms of trade gains and compression in imports of petroleum products have narrowed the trade deficit in the last three months to its lowest level since 2009-10."


RBI noted that retail inflation, or consumer price index (CPI) has been firming up off-late but added that inflation excluding food and fuel fell successively in the nine months till February. "A large part of this disinflation has been on account of the slump in international crude oil prices feeding through into domestic prices of petrol and diesel that are included under the category transport and communication." 

Talking about rural wages that imapct rise in inflation, RBI said that the rate of growth of rural wages has come off substantially from the double digit levels that prevailed up to November 2013. "Firms are also reporting a substantial easing of input price pressures, barring the most recent purchasing manager surveys."

Economic activity

RBI said that domestic economic activity is likely to have strengthened in the last quarter of previous fiscal but on the agricultural front it said that the adverse impact of unseasonal rains and hailstorms in March is still unfolding. "Initial estimates indicate that as much as 17 per cent of the sown area under the rabi crop may have been affected though the precise extent of the damage remains to be determined," RBI said in its monetary policy statement. 

Commenting on the industrial production front, RBI said that manufacturing  appears to be regaining momentum with the growth of production in positive territory for three consecutive months till January. It said, "While basic goods production has been expanding steadily since November 2013, capital goods output has been relatively lumpy and volatile, and more positive readings are needed to be confident about a durable pick-up in investment demand. The persisting contraction in consumer durables production for over two years could be reflecting the underlying weakness in consumption demand as well as higher imports." 

The Bank said that services sector is still sending out mixed signals. It said that national accounts statistics suggest consumption demand for services is robust but bank credit and deposit growth remains subdued.

Courtesy - DNA

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