New Delhi : The Finance Ministry on Tuesday said the RBI monetary policy is broadly in line with government’s expectations on growth and inflation. In its second bi-monthly policy review for the current fiscal, RBI maintained status quo on interest rate, while pegging economic growth at 7.6 per cent and retail inflation target at 5 per cent for January 2017.
“RBI policy statement broadly endorses government expectations on GDP growth and inflation,” Economic Affairs Secretary Shaktikanta Das said.
Domestic conditions for growth are improving gradually, mainly driven by consumption demand, which is expected to strengthen with a normal monsoon and the implementation of the 7th Pay Commission award, Reserve Bank of India said.
“Higher public sector capital expenditure, led by roads and railways, should crowd in private investment, offsetting somewhat the subdued appetite for fresh private investment due to financial stress,” RBI said. It added, however, that business confidence will be restrained to an extent on account of unrelenting global factors. RBI said more monetary transmission to support the revival of growth continues to be critical. The government’s reform measures on small savings rates combined with the RBI’s refinements in the liquidity management framework should help the transmission of past policy rate reductions into lending rates of banks, it added, reports PTI. Stating that continuing weakness in private investment is a concern, RBI said demand conditions are likely to improve going forward and consumer confidence is seen rising on improving expectations of employment and spending, with rural demand aided by a stronger monsoon.
Retail inflation in April soared to 5.39 per cent on higher food prices, up from 4.83 per cent in previous month.
[alert type=”e.g. warning, danger, success, info” title=””]“While Policy Repo rate and CRR have been kept unchanged, RBI has reiterated its stance to progressively lower the average ex ante liquidity deficit in the system from one percent of NDTL to a position closer to neutrality. This will help in quicker transmission of monetary policy initiatives, with MCLR framework in place, to support growth. It is comforting to note that liquidity is expected to be stable during the period of outflow of FCNR deposits.CPI target is retained at 5 % in March 2017, though with an upside bias, and GVA growth expectation has been kept at 7.60% for FY 2017. Policy envisages continuation of accommodative stance, which is pro- growth, “ Melwyn Rego/ MD and CEO, Bank of Ind[/alert]ia