Rbi continues to be "accomodative", to wait for data on inflation_ rajan

In line with the market expectations, the Reserve Bank of India has kept the key policy rates unchanged. The central bank said that it is keeping a keen eye on the Union Budget due on 29th February, before taking any decision that would rattle the market participants. The stance is akin to the policy statement from the Fifth Bi-monthly meet which reiterated that the global growth continues to be weak. No tinkering with the repo rates Expectations of a normal monsoon after two consecutive years of rainfall deficiency, the large positive terms of trade gain, improving real incomes of households

and lower input costs of firms should contribute to strengthening the growth momentum. Yet, still weak domestic private investment demand in a phase of balance sheet adjustments, re-emergence of concerns relating to stalled projects, excess capacity in industry, sluggish external demand conditions dampening export growth could act as headwinds. Based on an assessment of the balance of risks, GVA growth for 2016-17 is projected at 7.6 per cent The reserve bank expects that with unfavourable base effects on the ebb and benign prices of fruits and vegetables and crude oil, the January 2016 target of 6 per cent should be met. Going a step further, it estimated that the under the assumption of a good monsoon, the inflation is expected to be inertial and be around 5 per cent by the end of fiscal 2016-17. However, the implementation of the VII Central Pay Commission award, which has not been factored into these projections, will impart upward momentum to this trajectory for a period of one to two years.

The Reserve Bank will adjust the forecast path as and when more clarity emerges on the timing of implementation. Revival of private investment key to growth The RBI said that though the current momentum of growth is reasonable, underlying growth drivers need to be rekindled to place the economy durably on a higher growth trajectory. In this regard, revival of private investment, in particular, has a crucial role, especially as the climate for business improves and fiscal policy continues to consolidate.

Ease of doing business Growth expected to strengthen gradually Here are the key takeaways from the Policy Meeting The December calm in global financial markets – suggesting that the normalisation of US monetary policy was fully anticipated – was dispelled in January 2016 by fears of further weakening of the Chinese economy and the depreciation of the Renminbi. Capital outflows from China triggered sell-offs across AEs and EMEs, exacerbating currency declines and heightening volatility.

Crude oil prices fell below US $ 30 per barrel – a 12-year low – on expectations of Iran adding to the supply glut. Prices of gold prices and US Treasuries hardened on safe haven demand. Financial markets remain vulnerable to bouts of volatility and capital outflows from EMEs as an asset class. Bearish commodity price dynamics are also likely to impact investor sentiment. web9 Inflation projected at 5 per cent by FY2016-17 The central bank kept the repo rate same, suggesting a more “accomodative stance”.

Governor Raghuram Rajan declared that the Repo Rate will be maintained at 6.75%, with CRR at 4%. Reverse Repo Rate is held at 5.75%. One of PM Modi’s pet agenda has been to improve the ease of doing business in India. The Reserve Bank, on its part, has ensured that it will work in this direction and contribute to an ecosystem that is conducive for growth of start-ups. These measures will create an enabling framework for receiving foreign venture capital, differing contractual structures embedded in investment instruments, deferring receipt of considerations for transfer of ownership, facilities for escrow arrangements and implification of documentation and reporting procedures. Commodity price dynamics to impact investor sentiment In its official statement, RBI said, “Since the fifth bi-monthly statement of December 2015, global growth has slowed, with the ongoing weakening of activity in major emerging market economies (EMEs) outweighing the recovery in some advanced economies (AEs). World trade has remained subdued, held down by anaemic demand, new lows in commodity prices and currency realignments.”