RBI projects inflation will stay below 4% in first half of fiscal | Current Affairs, Current Affairs 2017

RBI projects inflation will stay below 4% in first half of fiscal

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Prospects of a softer monetary policy stance by the RBI over the course of the fiscal brightened on Friday as the central bank sounded optimistic on inflation control, saying it projected retail inflation to be in the range of 2-3.5 per cent in the first half of the year and at 3.5-4.5 per cent in the second half.

“CPI (consumer price indexed) inflation is expected to be in the range of 2.0-3.5 per cent in the first half of the year and 3.5-4.5 per cent in the second half,” the Reserve Bank said in it Financial Stability Report 2017.

“Retail inflation measured by year-on-year variation in consumer price index (CPI) declined to a historic low of 2.18 per cent in May 2017. There has been a sharp fall in food inflation from 6.3 per cent in April 2016 to (-)0.2 per cent in May 2017,” the report said.

“Retail inflation, excluding food and fuel that remained sticky during the second half of 2016-17 at around 4.9 per cent, dipped to 4.3 per cent in April and 4.2 per cent in May 2017, largely reflecting the impact of decline in global crude oil prices on transport and communication and moderate price pressures in services,” it added.

At its second bi-monthly monetary policy review of the fiscal on June 7, the Reserve Bank of India maintained status quo on its repo, or short-term rate for lending to commercial banks, at 6.25 per cent. In doing so, the policy statement said the six-member MPC was guided by the risks to inflation.

“As the year progresses, underlying inflation pressures, especially input costs, wages and imported inflation, will have to be closely and continuously monitored,” Patel said, as per the MPC meeting minutes.

“The risk of fiscal slippages, which, by and large, can entail inflationary spillovers, has risen with the announcements of large farm loan waivers,” he said.

“At the current juncture, global political and financial risks materialising into imported inflation and the disbursement of allowances under the 7th central pay commission’s award are upside risks,” he added.

The RBI Governor, thus, argued for avoiding premature policy action.

“Considering the high uncertainty clouding the near-term inflation outlook, there is a need to avoid premature policy action at this stage. I, therefore, vote for holding the policy repo rate at the current level of 6.25 per cent and maintaining the neutral stance of monetary policy,” Patel said.

“Premature action at this stage risks disruptive policy reversals later and the loss of credibility,” he said.

In its latest Financial Stability Report, the RBI also warned that asset quality of banks continued to remain weak with their gross non-performing loans rising to 9.6 per cent up to March 2017, which figure could rise to 10.2 per cent by next March.

Gross non-performing assets (NPAs), or bad loans, stood at 9.2 per cent in the September 2016.

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