Second Bi-Monthly Monetary Policy Statement on June 7, 2016 by Governor Rajan
Monetary Policy 2016-17
Monetary Policy 2016-17
As I expected there was nothing surprising in
Governor Rajan's statement. RBI kept it key policy rate - the repo rate -
unchanged at 6.5%.
Please read my related blogs of April
13, 2016 and April 1, 2016. I had expected the
RBI to reduce the repo rate by about 0.5% in 2016-17, with the first cut not
before the June or August monetary policy statements, by when the picture on
India's monsoon – an important factor in determining food price inflation -
would be fairly clear . However, in the April 5 statement, RBI reduced the repo
rate by 0.25% to 6.5%.
In the second
week of April, the Meteorological Department announced that it expects this
year the monsoon to be normal or in excess.
CPI has
trended higher over the last two months - April (5.47%) and May (5.76%) have
come in above the 5% target set for March 2017. The RBI expects the path of
inflation to rise and then fall to 5%, although the April number came in above
RBI’s expectation. On balance, however, RBI saw no change in the inflation
outlook for period up to March 2017.
