No surprises: on RBI repo rate cut

 

 

 

No surprises: on RBI repo rate cut

RBI’s reduction in benchmark rates is an acknowledgement of a slowdown in growth
There was no surprise in the 25 basis points cut in benchmark interest rates by the Reserve Bank of India in its first bi-monthly policy statement(विवरण) of the financial year(वित्तीय वर्ष) announced on Thursday. The market had anticipated(अपेक्षित/प्रत्याशित) such a cut and the only question was whether the central bank would surprise with a deeper(गहरे ) 50 basis points cut. In the event, the Monetary Policy Committee (MPC) seems to have decided to hold its horses and settle for a conservative(रूढ़िवादी ) approach(दृष्टिकोण) given the divergent(विभिन्न) sets of data that it was confronted(सामना) with. On the one hand, inflation(मुद्राप्रसार), despite(बावजूद/विरोध से) the mild spike in February, is well under control at 2.6% and is projected to average 3.2% to 3.4% in the first half of 2019-20. This is below the 4% target set for the MPC. But there are some factors that could spring a surprise on the upside, such as the behaviour(व्यवहार/बर्ताव) of the monsoon and the trend in global oil prices, both of which feed directly into inflationary expectations(उम्मीदें). Early forecasts(पूर्वानुमान ) indicate(संकेत ) a strong(प्रबल ) possibility(संभावना) of a below-normal monsoon due to El Niňo. Such an event would cast a shadow on agricultural output, and consequently(फलस्वरूप/परिणामतः ) the food prices. Similarly, global oil prices are now edging(किनारा/धारा) close to the $70 a barrel mark on the back of production cuts by the OPEC cartel. While the soft growth trends in the global economy could act as a check on any runaway increase(वृद्धि,) in oil prices, the chances of a sharp(तेज ) fall(गिरावट) in the next few months appear remote at this point in time. If these are points of upward pressure(दबाव) on inflation, on the other side growth has been faltering(लड़खड़ा /दुर्बलता) in the last few months, going by both data on industrial output and overall GDP. The Central Statistics Office has revised(संशोधित ) the GDP growth for 2018-19 downwards to 7% while the RBI has projected a lower growth of 7.2% in 2019-20 compared(तुलना) to the 7.4% estimated in the last policy.

The 25 basis points cut is, therefore, an acknowledgement by the MPC of the slowdown in growth. It also signals a shift in policy since Shaktikanta Das assumed(ग्रहण/स्वीकृत) office as Governor of the RBI, whereby the MPC is not solely(केवल/सिर्फ़) focussed( ध्यान केंद्रित) on inflation but also takes into account growth trends with equal(समान ) seriousness(गंभीरता). The MPC’s neutral policy stance is prudent given the uncertainties(अनिश्चितताओं/संदेह) ahead as it gives the central bank the flexibility to tailor policy to emerging(उभरते ) data sets. Meanwhile, Mr. Das has sent out a welcome, clear signal on the central bank’s commitment(प्रतिबद्धता/सौंपना) to the framework for resolution(संकल्प/प्रस्ताव) of stressed(बल देना) assets(संपत्ति) in the backdrop of the Supreme Court striking(विचित्र) down its circular issued on February 12, 2018. While underlining that the RBI’s powers have not been compromised, he has indicated that the central bank will soon reissue the circular taking into account the apex court’s observations(अवलोकन/निगरानी). This is as it should be.

 

Important Vocabulary

1.sharp(तेज)
Synonyms: conformity, consent, acquiescence, amenability, assent
Antonyms: difference, disagreement, refusal, disobedience, rebellion

2. despite(बावजूद/विरोध से
Synonyms: against, although, even though, even with, in contempt of

3. conservative(रूढ़िवादी
Synonyms: middle-of-the-road, reactionary, timid, traditional, Tory
Antonyms: changeable, inconstant, unfixed, unstable, unsteady

4. edging(किनारा/धारा)
Synonyms: borderline, boundary, brim, brink, curb
Antonyms: center, inside, interior, middle

5. faltering(लड़खड़ा /दुर्बलता)
Synonyms: flounder, hesitate, reel, waver, wobble
Antonyms: calm, hold, remain, stabilize, stay

6. assumed(ग्रहण/स्वीकृत)
Synonyms: affected, counterfeit, fake, feigned, pretended
Antonyms: genuine, real, sincere, true, natural

7. commitment(प्रतिबद्धता/सौंपना)
Synonyms: engagement, guarantee, need, pledge, promise
Antonyms: break, breach, irresponsibility, broken promise, denial

8. striking(विचित्र
Synonyms: arresting, astonishing, bizarre, compelling, conspicuous
Antonyms: bad, boring, common, homely, inconsequential

9. observations(अवलोकन/निगरानी).
Synonyms: conclusion, consideration, examination, experience, information
Antonyms: heedlessness, ignorance, neglect, unobservance, disbelief

10. resolution(संकल्प/प्रस्ताव)
Synonyms: decision, settlement, verdict, aim, boldness
Antonyms: indecision, apathy, cowardice, fear, flexibility

 

 

 

Credit To The Hindu News Paper

RBI’s reduction in benchmark rates is an acknowledgement of a slowdown in growth
There was no surprise in the 25 basis points cut in benchmark interest rates by the Reserve Bank of India in its first bi-monthly policy statement of the financial year announced on Thursday. The market had anticipated such a cut and the only question was whether the central bank would surprise with a deeper 50 basis points cut. In the event, the Monetary Policy Committee (MPC) seems to have decided to hold its horses and settle for a conservative approach given the divergent sets of data that it was confronted with. On the one hand, inflation, despite the mild spike in February, is well under control at 2.6% and is projected to average 3.2% to 3.4% in the first half of 2019-20. This is below the 4% target set for the MPC. But there are some factors that could spring a surprise on the upside, such as the behaviour of the monsoon and the trend in global oil prices, both of which feed directly into inflationary expectations. Early forecasts indicate a strong possibility of a below-normal monsoon due to El Niňo. Such an event would cast a shadow on agricultural output, and consequently the food prices. Similarly, global oil prices are now edging close to the $70 a barrel mark on the back of production cuts by the OPEC cartel. While the soft growth trends in the global economy could act as a check on any runaway increase in oil prices, the chances of a sharp fall in the next few months appear remote at this point in time. If these are points of upward pressure on inflation, on the other side growth has been faltering in the last few months, going by both data on industrial output and overall GDP. The Central Statistics Office has revised the GDP growth for 2018-19 downwards to 7% while the RBI has projected a lower growth of 7.2% in 2019-20 compared to the 7.4% estimated in the last policy.

The 25 basis points cut is, therefore, an acknowledgement by the MPC of the slowdown in growth. It also signals a shift in policy since Shaktikanta Das assumed office as Governor of the RBI, whereby the MPC is not solely focussed on inflation but also takes into account growth trends with equal seriousness. The MPC’s neutral policy stance is prudent given the uncertainties ahead as it gives the central bank the flexibility to tailor policy to emerging data sets. Meanwhile, Mr. Das has sent out a welcome, clear signal on the central bank’s commitment to the framework for resolution of stressed assets in the backdrop of the Supreme Court striking down its circular issued on February 12, 2018. While underlining that the RBI’s powers have not been compromised, he has indicated that the central bank will soon reissue the circular taking into account the apex court’s observations. This is as it should be

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