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Lacklusture last Bi-Monthly Monetary Policy for FY 2015-16

RBI Governor Dr. Raghuram Rajan today announced the Sixth and the last Bi-monthly Monetary Policy for the Financial Year 2015-16.

Enumerated and discussed below are the key aspects of the aforesaid policy statement.

This was a business-as-usual statement. Unlike in the past, it did not talk about any new plans, initiatives or proposals.

Interest Rates
1. Given that the policy interest rates were slashed by 0.50% in the monetary policy announced in September 2015 and the difficult economic environment still persisting, no further rate cuts have been announced in today's policy announcement. This is in line with the market expectations.

Unfortunately, this time there was no mention about the banks' reluctance to pass on the policy rate cuts to its aam borrowers. This is one area which needs sustained pressure on the banks.

2. Most of the large economies in the world, except US, are facing economic turmoil. However, RBI's statement acknowledges that "the Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude". This is important for stable and sustainable economic growth.

As such, RBI will not hesitate to cut interest rates based on future economic data and the structural reforms that may be announced in the Union Budget this month-end.

Synopsis of the RBI's Sixth and Last Bi-Monthly Monetary Policy 2015-16.

Future Trends
3. The financial year 2015-16 is expected to end with a growth of 7.40%, with a downward bais. While the agriculture and services sectors may show some improvement, industrial activity may still take some more time to pick-up.

4. For the financial year 2016-17 the growth is projected at 7.60% i.e. a gradual strengthening of the economy. The positives include normal monsoon expectation, lower input costs for companies and improving household incomes. Negatives would be weak export demand, excess capacity and stressed corporate balance sheets.

5. The target for inflation at 6% by Jan 2016 should be met. And, going by the present trends on commodity / oil prices, normal monsoon expectation and currency exchange rates, inflation of 5% by end 2016-17 is likely. But the 7th Pay Commission, bad monsoon, adverse geo-political developments and events in the international financial markets, could upset the projected inflation calculations.

Current Scenario
6. Global economic growth has slowed down in last few months. Though the advanced economies have stabilized, the emerging economies are witnessing weakening economic activity. Particularly, more worrisome is the slump in economic growth in China. Its growth in last quarter of 2015 was slowest since 2009. 

Internationally, the financial markets were highly volatile. China's weakening economy and depreciating currency triggered huge capital outflows. Gold prices and US dollar have strengthened as they are considered safe in these turbulent times.

7. In India, the overall economic activity continues to remain subdued. All the three sectors viz. agriculture, industry and services continue to face challenges. 

8. CPI inflation has been rising for the last few months. Though goods inflation is marginally down, services inflation is still high especially in the areas of housing, medical, transport and communication. Food inflation too remains high, primarily due to poor monsoon and supply constraints.

9. Personal loans from banks continue to be on a strong growth path.

10. It is now more than a year, when exports have continued to shrink every month. However, the pace of slowdown seems to be slackening. Though the oil prices are down, quantity of oil / lubricants and gold imported has increased, putting pressure on the current account deficit.

11. Though the FDI and NRI deposits have remained strong, this trend may not sustain. Decline in oil prices will have its impact on the foreign currency remittances from the Gulf.

This, in brief, is what Dr. Raghuram Rajan had to offer in RBI's Sixth and last Bi-monthly Monetary Policy Review for the Financial Year 2015-16.

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