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RBI Macro Statement Shows Unlikely To Cut Rates

Deepak Shenoy1 min read
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What is "RBI Macro Statement Shows Unlikely To Cut Rates" about?
What category is this article in?
Economy
Who wrote this article?
Deepak Shenoy, Capitalmind's research team.
When was this article published?
Published 30 July 2012.
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1 min read
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RBI

RBI released a macroeconomic and monetary development statement today. Significant is one piece in their “outlook”.

VII.23 Domestic growth declined to its lowest in 29 quarters during Q4 of 2011-12. Early indications for Q1 of 2012-13 suggest that growth is likely to remain subdued. While growth risks are significant, policy choices have been complicated as inflation remains above the comfort level. Further, inflation risks have increased and continue to constitute significant risk to growth sustainability, thus **making it imperative to not allow monetary conditions to aggravate these risks. **Also, the wide CAD and high fiscal deficit continue to limit the monetary space and pose major challenges for macroeconomic policy. Though adjustments in the exchange rate could contribute to bridging the current account deficit, excessive volatility, particularly the risks of a downward spiral in the rupee, needs monitoring. Going forward, improved liquidity and monetary conditions suggest the possibility of a slow recovery in industrial growth.

This gives me a strong feeling that there will be no rate cut tomorrow. Markets have gone up around 2% in a risk-on rally that, it seems from news reports, is an indication of a rate cut. Honestly, I don’t think so; the RBI statement notwithstanding, not many expect a rate cut.

Some of the other things that the RBI has said, in plainspeak:

  • We thought the government would do something (fiscal policy) but they’ve done nothing.

  • Slowing Indian growth is a bh. And the fact that the world is slowing is a bigger bh.

  • If the world takes to quantitative easing, we’ll see inflationary pressure in India.

  • Drought - not just in India - will cause food prices to rise.

  • High debt and low earnings = financial “stress” (read: potential defaults)

Tomorrow is a big day. Don’t expect too much, though.

Tagged:RBI