Growth prop: On RBI repo rate cut

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Growth prop: On RBI repo rate cut

As the RBI cuts the benchmark repo rate, concerns over the fiscal deficit remain
Barely(मात्र/मुश्किल से) four months after the Reserve Bank of India switched its monetary policy(मौद्रिक/आर्थिक नीति) stance(मुद्रा/उदेश्य) to one of ‘calibrated(जांच करना) tightening(कसने)’, signalling interest rates were set to trend higher(उच्च प्रवृत्ति ) , it has reversed(उलटी ) direction(दिशा). Not only did the RBI’s monetary policy committee unanimously(सर्वसम्मति से) opt to revert(वापस लौटना ) to a ‘neutral(तटस्थ/निष्पक्ष)’ posture(मुद्रा/आसन), but the rate-setting panel unexpectedly(अप्रत्याशित रूप से/एकाएक) decided, by a 4-2 majority, to cut the benchmark repo rate by 25 basis points, to 6.25%. The MPC’s reasoning has been fairly(काफी/निष्पक्ष रूप से) straightforward(सरल/स्पष्ट). With Consumer Price Index-based inflation(मुद्राप्रसार) having continued to slow and projected(अनुमानित ) to stay well below the medium-term target of 4% till at least the October-December quarter, the MPC saw an opportune(उचित ) moment(क्षण) to pivot(प्रधान आधार/केन्द्रबिन्दु) to a growth-supportive(विकास सहायक) stance. That there is a need to bolster(आधार/ बढ़ाने ) economic momentum(आर्थिक गति) is evident from the RBI’s downward revision of the forecast(वृद्धि ) for growth in the first half of the next fiscal year. The projection has been lowered to a range of 7.2-7.4%, from 7.5% posited in the RBI’s December statement, as moderating(मध्यस्थता/संयमित करना) global growth and slowing overseas(विदेशों ) demand(मांग ) add uncertainties(अनिश्चितता/विकल्प) to the prevailing(प्रचलित ) domestic(घरेलू) imbalances. Specifically, production and import of capital goods(पूंजीगत वस्तुएं), which is a key gauge(अनुमान/पैमाना) of investment(निवेश ) demand, contracted in November/December and credit flows to industry remain muted. With an overall shortfall of 4% in rabi sowing across various(विभिन्न/तरह तरह का) crops(फसलों/उपज) and storage in major(प्रमुख ) reservoirs(जलाशय)at just 44% of the full level, the slowdown in farm output growth may, worryingly, end up being more protracted.

The less-than-sanguine outlook for the rural economy(ग्रामीण अर्थव्यवस्था) is also reflected(प्रतिबिंबित) in the high-frequency indicators(संकेतक/सूचक) of the services sector. Data on sales of both motorcycles and tractors in December underscore weakening(कमजोर ) demand(मांग) in the hinterland(आंतरिक इलाके/पश्चभूमि). This weakness in the farm sector is undergirding the unprecedented(अभूतपूर्व/बेमिसाल) softness in food prices. The December CPI data showed continuing(निरंतर ) deflation in food items. While the RBI’s inflation calculus clearly(स्पष्ट रूप) benefits(लाभ) from the ongoing trend in price gains, the MPC is justifiably(उचित रूप से) cognisant(संज्ञानात्मक) of the tenuousness of the assumptions(मान्यताओं ) it has made for its forward projections(आगे अनुमान). Importantly, while it has assumed a normal monsoon this year, the central bank acknowledges that any variation(परिवर्तन/तबदीली) in geographic spread(फैलाव/विस्तार) or uneven(विषम/अनियमित) distribution(वितरण/विस्तार) in terms of time could roil the inflation outlook. Inexplicably(बेवजह), however, the RBI’s policy statement fails to make any mention(ज़िक्र/उल्लेख/हवाला) of its hitherto(अब तक) abiding(टिकाऊ/स्थायी) concern(चिंता ) about fiscal(वित्तीय/राजस्व) prudence(सावधानी/बुद्धिमानी). With the Interim Budget showing some slippage from the fiscal roadmap and projecting a budget deficit of 3.4% for both the current financial year and the next, the risk of government borrowing(उधार/कर्ज लेना ) crowding(भीड़) out private(निजी ) investment(निवेश ) demand remains(बनी हुई ) tangibly(मूर्त रूप से ) real(वास्तविक ). One must assume that the central bank will resume normal service on providing salutary caution to the government after the coming general election.

 

Important Vocabulary

1. Barely(मात्र/मुश्किल से)
Synonyms: almost, hardly, scarcely, just, scantily

2. Calibrated(जांच करना)
Synonyms: graded, measured, registered, serialized, tapered

3. Stance(मुद्रा/उदेश्य)
Synonyms: attitude, posture, stand, viewpoint, bearing

4. ‘Neutral(तटस्थ/निष्पक्ष)’
Synonyms: disinterested, evenhanded, fair-minded, inactive, indifferent
Antonyms: biased, concerned, decided, interested, involved

5.Posture(मुद्रा/आसन),
Synonyms: aspect, attitude, demeanor, disposition, mode

6. Projected(अनुमानित )
Synonyms: calculate, envisage, estimate, forecast, predict
Antonyms: destroy, disbelieve, disorder, disorganize, disregar

7. Pivot(प्रधान आधार/केन्द्रबिन्दु)
Synonyms: fulcrum, axle, center, heart, hinge,

8. Prevailing(प्रचलित
Synonyms: current, predominant, prevalent, rampant, universal
Antonyms: limited, uncommon, unfixed, individual, minor

9. Reflected(प्रतिबिंबित)
Synonyms: echoed, emulated, imitated, repeated, reproduced

10. Inexplicably(बेवजह),
Synonyms: peculiarly, queerly, strangely, ridiculously, unusually

11. Prudence(सावधानी/बुद्धिमानी).
Synonyms: austerity, conservatism, diligence, discretion, foresight
Antonyms: carelessness, ignorance, indiscretion, stupidity, thoughtlessness

12. Tangibly(मूर्त रूप से )
Synonyms: palpably, physically, substantially, actually, bodily
Antonyms: immaterially, slightly, unsubstantially

13. Abiding(टिकाऊ/स्थायी)
Synonyms: continuing, enduring, eternal, everlasting, lasting
Antonyms: ceasing, ending, ephemeral, temporary, transient

 


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Credit To The Hindu News Paper

As the RBI cuts the benchmark repo rate, concerns over the fiscal deficit remain
Barely four months after the Reserve Bank of India switched its monetary policy stance to one of ‘calibrated tightening’, signalling interest rates were set to trend higher, it has reversed direction. Not only did the RBI’s monetary policy committee unanimously opt to revert to a ‘neutral’ posture, but the rate-setting panel unexpectedly decided, by a 4-2 majority, to cut the benchmark repo rate by 25 basis points, to 6.25%. The MPC’s reasoning has been fairly straightforward. With Consumer Price Index-based inflation having continued to slow and projected to stay well below the medium-term target of 4% till at least the October-December quarter, the MPC saw an opportune moment to pivot to a growth-supportive stance. That there is a need to bolster economic momentum is evident from the RBI’s downward revision of the forecast for growth in the first half of the next fiscal year. The projection has been lowered to a range of 7.2-7.4%, from 7.5% posited in the RBI’s December statement, as moderating global growth and slowing overseas demand add uncertainties to the prevailing domestic imbalances. Specifically, production and import of capital goods, which is a key gauge of investment demand, contracted in November/December and credit flows to industry remain muted. With an overall shortfall of 4% in rabi sowing across various crops, and storage in major reservoirs at just 44% of the full level, the slowdown in farm output growth may, worryingly, end up being more protracted.

The less-than-sanguine outlook for the rural economy is also reflected in the high-frequency indicators of the services sector. Data on sales of both motorcycles and tractors in December underscore weakening demand in the hinterland. This weakness in the farm sector is undergirding the unprecedented softness in food prices. The December CPI data showed continuing deflation in food items. While the RBI’s inflation calculus clearly benefits from the ongoing trend in price gains, the MPC is justifiably cognisant of the tenuousness of the assumptions it has made for its forward projections. Importantly, while it has assumed a normal monsoon this year, the central bank acknowledges that any variation in geographic spread or uneven distribution in terms of time could roil the inflation outlook. Inexplicably, however, the RBI’s policy statement fails to make any mention of its hitherto abiding concern about fiscal prudence. With the Interim Budget showing some slippage from the fiscal roadmap and projecting a budget deficit of 3.4% for both the current financial year and the next, the risk of government borrowing crowding out private investment demand remains tangibly real. One must assume that the central bank will resume normal service on providing salutary caution to the government after the coming general election.