Watching price-line

Watching price-line

FPJ BureauUpdated: Wednesday, May 29, 2019, 05:42 AM IST
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Having persuaded themselves that the bank rate would be raised by at least 0.25 basis points, when the RBI’s Monetary Policy Committee maintained the status quo on Friday, the markets spooked and the rupee breached the 74-mark. But the MPC seemed in no hurry to support the currency and boost the exports, instead concentrating on limiting inflationary pressures building in the economy due to higher fuel prices and higher pay packets in the hands of government servants following implementation of the pay commission award.

The RBI moved from its neutral stand to calibrated tightening, having moved to neutral from accommodative in February 2017. It maintained the policy rate at 6.50 per cent. Markets posted their worst one-day loss in two years on Friday, down 792 points or over 2.25 per cent. Given that, global crude prices are still in the higher spiral, thanks to the impending sanctions against Iran, a major supplier of oil, the cautionary stance of MPC was unexceptionable. The central bank priorities controlling inflation over any other objective, including, it seems, defending the rupee, and, therefore, would not make the basic lending rate costlier. Marketmen had reasoned that a higher PLR would also constrain the flow of foreign funds which, in recent months, have been net sellers in equities and bonds. However, controlling inflation when, thanks to higher fuel prices, its cascading effect on the consumer economy could prove inflationary seems to have guided the MPC.

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