5 quick takeaways from the RBI Monetary Policy

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5 quick takeaways from the RBI Monetary Policy
The Reserve Bank of India (RBI) has an uncanny way of surprising. But, this time it did not surprise the markets and left key policy rates unchanged, as was widely expected. This was largely in keeping with the trend of falling inflation. Here are 5 quick takeaways from the RBI Monetary Policy.

1) Inflation remains a threat

If analysts are expecting a rate cut anytime soon, they should think again. The RBI has sounded hawkish on inflation and had this to say in a statement.

"There are risks to the central forecast of 8 per cent CPI inflation by January 2015 stemming from a less-than-normal monsoon due to possible el nino effects; uncertainty on the setting of minimum support prices for agricultural commodities and the setting of other administered prices, especially of fuel, fertiliser and electricity; the outlook for fiscal policy; geo-political developments and their impact on international commodity prices."

A stark warning on the inflation front.

2) CPI inflation target set at 6 per cent By Jan 2016

The central bank has set targets to bring down inflation in a systematic manner.

"The Reserve Bank's policy stance will be firmly focussed on keeping the economy on a disinflationary glide path that is intended to hit 8 per cent CPI inflation by January 2015 and 6 per cent by January 2016," the Central Bank has said in a statement. This is significantly lower than the current rates of inflation.

3) Dim outlook on growth

The RBI has also sounded a little discontent with the growth picture

"Despite some positive movement in more recent data, industrial activity continues to be a drag on the economy, with retrenchment in both consumption and investment demand reflected in the contraction of output of consumer durables as well as capital goods. In the quarters ahead, the boost provided by robust agricultural production in 2013 may wane. Moreover, the outlook for the 2014 south-west monsoon appears uncertain. Sluggishness in industrial activity, exports and several categories of services underlines the need to revitalise productivity and competitiveness" the central bank has stated.

4) Volatility to capital flows remains a risk

While India is receiving healthy capital inflows, particularly from Foreign Institutional Investors (FIIs), emerging markets run the risk of volatility in capital inflows.

"For a number of emerging markets, further tightening of external financing conditions and renewed volatility of capital flows are the biggest risks to their outlook. Going forward, global growth is likely to strengthen in the rest of the year, with risks tilted to the downside," the RBI has said.

5) Need to revitalise productivity and competitiveness

The RBI has emphasised that there was a need to revitalise productivity and competitiveness against a backdrop of uncertain monsoon.

"Moreover, the outlook for the 2014 south-west monsoon appears uncertain. Sluggishness in industrial activity, exports and several categories of services underlines the need to revitalise productivity and competitiveness," the RBI has said in a statement.

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