Growing feeling that a change is in the offing
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Jun 8, 2024 | Page No.: 7 | Position: Top Right | Source: Madan Sabnavis | Sq Cm: 304 | AVE: 59338 | PR Value: 296690
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Growing feeling that a change is in the offing the four quarters having around the same number Alongside it has been pointed out that the average capacity utilisation rate has increased to 76 5 in Q4 -FY24 This is significant because con- trary to the view that the high repo rate has militated against growth ¦ MADAN SABNAVIS it is clear the RBI believes that growth will continue on the high THE CREDIT POLICY did not trajectory path throw up any surprises as such Sixth the RBI has also hence which can be gauged by almost an indirectly addressed the issue of unchanged market reaction It growth being affected by high inter- was business as usual There are est rates which is a view in the mar- however some very interesting There is a direct hint that the ket There can be a reference made aspects of the narrative progress of the rains will be to the past when the policy had fol- The first is that 2 of the 6 mem- important to be certain of the lowed the tenet of doing everything bers had thought otherwise and inflation trajectory to protect growth But that was voted for both a rate cut and a during the Covid phase where the change in stance This is different focus was on keeping interest rates from the past when there was just having spillover effects on core low to support the economy Clearly one contrarian view It can be con- inflation and hence inflationary this is not the situation todaywhere cluded that there is a growing feel- expectations This also fits in with growth is robust The average repo ing that a change could be in the off- the unchanged stance taken on the rate in the last ten years was in the ing in future The minutes of the withdrawal of inflation as it hinges region of 6-6 5 and hence is not monetary policy committee meet- on both the transmission of rates as above the path to come in the way of ing would throw light on how eco- well as managing inflationary growth nomic data and prospects were expectations The footnotes do sug- Last the RBI has reaffirmed the interpreted differently by the two gest that the transmission of the use of VRR and VRRR auctions to contrarian members 250 bps in repo rate has increased manage liquidity which will Second the RBI s take on infla- by only 204 bps in average lending assuage markets This has worked tion is significant It has reiterated rate while that on deposits was up well through different phases of the number of 4 5 However the by 245 bps surpluses and deficits and the mar- RBI has highlighted the impact of Fourth the RBI has reiterated kets should keep looking at the the recent heatwave on the output that the Fed s action should not be weighted average call rate which is and prices of horticulture products taken as a factor that is considered what has been targeted and main- which will remain a concern going by the MPC for deciding as it is dri- tained in the corridor of 6 25- forward Also while acknowledging ven by local conditions This should 6 75 with the tendency to settle the IMD forecast of a normal mon- clear the air for the markets Often somewhere in the middle soon there is a direct hint that the any statement made by a Fed mem- Hence while no action has been progress of the rains will be impor- ber which indicates a possible Fed taken the commentary has been tant to be certain of the inflation cut in September is interpreted as cogent and indicative of how the trajectory Further while the fore- being the cutoff mark for the RBI central bank sees the state of the cast for Q2 is low at 3 8 the RBI too Theoretically any Fed action economy - both present and future has stated that this is mainly due to will influence the flow of invest- The overarching factor is inflation the base effect The forecasts for the ment and currencies and would which has to not just come down following quarters are in the region have a weak impact on domestic towards 4 but should on a durable of 4 5-4 60 o inflation which is through the basis to trigger any change in Third related to inflation the rupee depreciation route stance RBI has voiced concern over the Fifth the GDP growth rate for The writer is chief economist possibility of higher food inflation FY25 has been upped to 7 2 with Bank of Baroda Views are personal