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RBI Monetary Policy: 5 quick takeaways

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RBI Monetary Policy: 5 quick takeaways
It's been three Monetary Policies, since RBI Governor Raghuram Rajan took charge at the RBI and each time he has proved analysts wrong. This time when analysts were expecting a status quo on repo rates, he has hiked the same. Here are 5 quick takeaways from the Monetary Policy.
 

1) Repo rate hike belies expectations

Stunning markets once again, the Reserve Bank of India (RBI) today belied expectations by hiking repo rates (rates at which it lends to banks).

Today's decision was following worries over elevated levels of inflation and despite lower than expected inflation data for December, which saw WPI Inflation falling to a surprisingly low rate of 6.16 per cent.

Consumer price inflation also fell sharply to 9.87 per cent in December, as against 11.24 per cent in the month of December, which was ignored by the RBI, while hiking rates today. Read what are repo rates here

2) CPI ex-food and fuel inflation exhibits persistence

One reason why the RBI hiked rates was that the CPI inflation, ex-food saw inflation persisting.

"Non-food manufactured products WPI inflation has remained subdued so far in the presence of a negative output gap, though Non-food manufactured products. WPI inflation has remained subdued so far in the presence of a negative output gap, though it has increased recently due to cost-push pressures. These pressures, along with second round impacts, have also caused consumer price inflation, ex-food and fuel to remain persistently high," the RBI has said.

3) CAD: A big silver lining

The current account deficit, according to the RBI is expected to be around 2.5 per cent for 2013-2014, which is good news for the Indian currency.

"Another silver lining is the significant narrowing of the trade deficit on the back of resilient export growth. The current account deficit for 2013-14 is now expected to be below 2.5 per cent of GDP as compared with 4.8 per cent in 2012-13," the RBI has said

 

4) Building hopes for a rate cut

The one reason why the stock markets recovered after the initial fall was the dovish future guidance by the RBI.

"If the disinflationary process evolves according to this baseline projection, further policy tightening in the near term is not anticipated at this juncture. In fact, if inflation eases at a pace that is faster than we currently anticipate, and that reduction is expected to be sustained, the Reserve Bank will have room to become more accommodative."

5) Reforms process is on

The enhanced framework for resolution of distressed assets will be operational by April 1, the RBI has said. The recommendations of the Dr. Nachiket Mor Committee on financial inclusion are being examined carefully as are the recommendations of the Dr. Urjit Patel Committee on the monetary policy framework.

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