RBI comes up with a wise policy
The Reserve Bank of India has come up with the decision to leave interest
rates unchanged, given easing inflation and the slowdown in economic momentum. This
was possible because of an unexpected softening in food inflation and a
collapse in oil prices in a surprisingly short span of time
The
monetary policy committee (MPC) now estimates retail inflation in the second
half of the fiscal year to slow and it foresees the softness in prices.
RBI’s primary remit is to achieve and preserve price stability, the central bank is wary of the
uncertainties that cloud the inflation horizon. With the prices of several food
items at “unusually low levels”, the RBI reckons there is the clear and present
danger of a sudden reversal, especially in prices of volatile perishable items.
Also, the medium-term outlook for crude oil is still quite hazy.
The central bank has once again raised a cautionary signal to
governments, both at the Centre and in the States. Fiscal slippages risk
impacting the inflation outlook, heightening market volatility and crowding out
private investment. Instead, this may be an opportune time to bolster
macroeconomic fundamentals through fiscal prudence.
While the decision may sound positive, implementation depends upon
political will of the center. The moot question remains whether the government
would also rise to the occasion by making most of the extant highly favourable
national economic scenario? Needless to say, it must prove its credentials by
desisting from the usual mixing of "economics with politics" even
when the same could never be construed as the good bed companions. Anyway, let
us wait and watch.
The welcome fall in oil prices, and the concomitant strengthening of the
rupee, have taken the pressure off the RBI. May both favourable factors endure.
Reserve Bank of India Deputy Governor Viral Acharya assured that the
central bank was ready to stand as the lender of last resort. He said the
present situation did not warrant any drastic steps given the health of the
Indian economy. The Deputy Governor’s comments come in the wake of sector
facing a crisis of confidence. There is no such necessity at the present given
the sound health of our economy.
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