Prudent increase: on RBI’s rate hike

 

Prudent increase: on RBI’s rate hike

The RBI’s decision to raise benchmark rates spotlights concerns about inflation
The decision by the Reserve Bank of India’s Monetary(मौद्रिक) Policy Committee to raise benchmark interest rates again by 25 basis points is a prudent(समझदार/विवेकी) one. This is the second successive rate increase in as many months, a response to mounting(बढ़ते/समन्वायोजन) uncertainties(अनिश्चितताओं/संदेह) on the inflation(मुद्राप्रसार) front. Continuing volatility(अस्थिरता/परिवर्तनशीलता) in crude oil prices, the recent softening notwithstanding(बावजूद,/तथापि), and its vulnerability to geopolitical(भू-राजनीतिक/भूगर्भीय) tensions and supply disruptions(अवरोधों/दुर्घटना) is one of the main risks to the inflation outlook. Among the RBI’s other concerns are volatile global financial markets, possibilities(संभावनाओं/संभव) of fiscal slippage(फिसलन) at the Central and State levels, the likely impact(प्रभाव/असर) of the increase in the minimum support price for kharif crops(फसलों/उपज), and the staggered(चौंका देना/लड़खड़ाकर चलना) impact of upward revisions (संशोधन)to house rent allowance paid by State governments. Rainfall has so far been 6% below the long-period average and deficient(अपूर्ण/न्यून) over a wider area than last year — more than a fifth of the country’s 36 sub-divisions have reported shortfalls. This has resulted in a drop in the total sown(बोया/घने रुप से ढंक लेना) area under kharif. The monetary authority has flagged the need to keep a close watch on rain over the remainder of the season, given the risks regional imbalances(असंतुलन) may pose to paddy output and CPI inflation. The June round of the RBI’s own survey of household inflation expectations(उम्मीदों/अपेक्षा) reveals(प्रकट करना/प्रत्यक्ष करना) that families see prices hardening(सख्त/दृढ़ीकरण) even further over both the three- and 12-month horizons. Domestic economic activity having strengthened to a point where the output gap has ‘virtually(लगभग/असल में) closed’, manufacturers polled by the central bank have reported higher input costs and selling prices over the April-June quarter.

The portents could not be clearer. With retail inflation having accelerated(गतिवर्धक/त्वरित) to 5% in June, the RBI has revised its projection for CPI inflation in the second half of the current fiscal year to 4.8%, from the June forecast(पूर्वानुमान/भविष्यवाणी करना) of 4.7%, and now sees price gains accelerating to 5% in the April-June quarter of 2019. Policymakers on the MPC have understandably(जाहिर है) spotlighted(चर्चित) the risks to the domestic economic rebound(वापसी/पलटाव) from global developments. While rising trade protectionism(संरक्षणवाद ) threatens(धमकी देना/जी छोटा करना) to impact investment flows, disrupt global supply chains and hurt all-round productivity, depreciations(विमूल्यन/मूल्य कम करना) in the value of most currencies against the strengthening dollar have rippled(लहराना) through many major advanced and emerging(उभरती) economies, spurring inflation across these markets. The MPC’s primary remit is to ensure that retail inflation stays firmly within a band of 2-6%, and preferably(अधिमानतः/विशेषतः) anchored(लंगर) at 4% over the medium term. So there is no room to quibble over the committee’s majority decision to raise(उठाना/बढ़ाना) borrowing(उधार) costs while retaining a ‘neutral’ policy stance. With inflation widely accepted as a hidden tax on the poor, the containment(रोकथाम) of price gains justifiably(उचित रूप)ought(चाहिए/पड़ना) to be the raison d’etre(होने का कारण) of monetary policy.

 

 

Important Vocabulary

1.Disruptions(अवरोधों/दुर्घटना)
Synonyms: interruption, break, separation, severance, splitting

2.Staggered(चौंका देना/लड़खड़ाकर चलना)
Synonyms: careen, falter, lurch, reel, shake
Antonyms: carry on, continue, stay

3.Mounting(बढ़ते/समन्वायोजन)
Synonyms:arise, escalate, go up, rise, soar
Antonyms: decrease, lessen, lower, descend, alight

4.Sown(बोया/घने रुप से ढंक लेना)
Synonyms:grow, propagate, scatter, broadcast, disseminate
Antonyms: destroy, raze, dig, harvest, reap

5.Imbalances(असंतुलन)
Synonyms: inequality, shortcoming, asymmetry, disproportion, lopsidedness

6.Spotlighted(चर्चित)
Synonyms: fame, light, limelight, notoriety, public eye
Antonyms: obscurity

7.Rippled(लहराना)
Synonyms: billow, breaker, crest, curl, fold

8.Preferably(अधिमानतः/विशेषतः)
Synonyms: rather, alternatively, by choice, first, in preference

9.Containment(रोकथाम)
Synonyms: check, condition, constraint, control, curb
Antonyms: allowance, liberation, permission, advantage, freedom

 

 

Credit To The Hindu News Paper

The decision by the Reserve Bank of India’s Monetary Policy Committee to raise benchmark interest rates again by 25 basis points is a prudent one. This is the second successive rate increase in as many months, a response to mounting uncertainties on the inflation front. Continuing volatility in crude oil prices, the recent softening notwithstanding, and its vulnerability to geopolitical tensions and supply disruptions is one of the main risks to the inflation outlook. Among the RBI’s other concerns are volatile global financial markets, possibilities of fiscal slippage at the Central and State levels, the likely impact of the increase in the minimum support price for kharif crops, and the staggered impact of upward revisions to house rent allowance paid by State governments. Rainfall has so far been 6% below the long-period average and deficient over a wider area than last year — more than a fifth of the country’s 36 sub-divisions have reported shortfalls. This has resulted in a drop in the total sown area under kharif. The monetary authority has flagged the need to keep a close watch on rain over the remainder of the season, given the risks regional imbalances may pose to paddy output and CPI inflation. The June round of the RBI’s own survey of household inflation expectations reveals that families see prices hardening even further over both the three- and 12-month horizons. Domestic economic activity having strengthened to a point where the output gap has ‘virtually closed’, manufacturers polled by the central bank have reported higher input costs and selling prices over the April-June quarter.

The portents could not be clearer. With retail inflation having accelerated to 5% in June, the RBI has revised its projection for CPI inflation in the second half of the current fiscal year to 4.8%, from the June forecast of 4.7%, and now sees price gains accelerating to 5% in the April-June quarter of 2019. Policymakers on the MPC have understandably spotlighted the risks to the domestic economic rebound from global developments. While rising trade protectionism threatens to impact investment flows, disrupt global supply chains and hurt all-round productivity, depreciations in the value of most currencies against the strengthening dollar have rippled through many major advanced and emerging economies, spurring inflation across these markets. The MPC’s primary remit is to ensure that retail inflation stays firmly within a band of 2-6%, and preferably anchored at 4% over the medium term. So there is no room to quibble over the committee’s majority decision to raise borrowing costs while retaining a ‘neutral’ policy stance. With inflation widely accepted as a hidden tax on the poor, the containment of price gains justifiably ought to be the raison d’etre of monetary policy.

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