Editorial on RBI monetary policy: A cautionary note

Editorial on RBI monetary policy: A cautionary note: Reserve Bank of India Governor Raghuram Rajan has opted for caution, citing the uncertainty surrounding the future trajectory of inflation and signs of an upside bias to expectations. In leaving interest rates...


"The RBI has also flagged the challenges to sustaining India’s economic momentum: global growth is uneven and struggling to gain traction, world trade is floundering for want of demand, the U.S. is weighed down by contracting industrial activity and exports, deflationary pressures are building in Japan, and the slowdown in China shows no signs of reversing. Besides, if Britain votes to leave the European Union, there is a real risk of “some turmoil in the financial markets”, according to Dr. Rajan, who added that the RBI is armed with adequate reserves to weather any volatility that may emerge. On the domestic front, green shoots are visible on many fronts. Cargo traffic at major ports, commercial vehicle sales, cement output and steel consumption are leading an upturn that point to a more broad-based expansion. The RBI’s own surveys reveal healthier order books and a pick-up in capacity utilisation that can help trigger a revival in private investment. Ultimately though, a lot will hinge on how the monsoon fares, and how much the Centre is willing to invest by way of capital to bolster public sector banks. The central bank, in the end, can only do so much."


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