Reserve Bank of India: No Rate Change and More Hawkish Statement

February 8, 2017

India’s Monetary Policy Committee failed to cut its interest rates, which many analysts had expected. There had been a cut in the reverse repo rate in December to 5.75% from 6.0% and cuts in both it and the repo rate of 25 bps last October. A drop in inflation seems transient. Therefore, a more hawkish statement was released:

The Committee remains committed to bringing headline inflation closer to 4.0 per cent on a durable basis and in a calibrated manner. This requires further significant decline in inflation expectations, especially since the services component of inflation that is sensitive to wage movements has been sticky. The committee decided to change the stance from accommodative to neutral while keeping the policy rate on hold to assess how the transitory effects of demonetisation on inflation and the output gap play out.

All this is being done to avoid a stalled downtrend in inflation. “The persistence of inflation excluding food and fuel could set a floor on further downward movements in headline inflation and trigger second-order effects.” The next policy review is scheduled for April 5-6.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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