RBI hunts many bears

Abstract

The first policy announcement of the new RBI Governor reveals that the realities of complex monetary policy formulation in India is beginning to dawn on the policy makers. RBI has reduced the rate on marginal standing facility (MSF) by 75 basis points and increased repo rate by 25 basis points. The Governor observed that easing the MSF rate was warranted because the external sector environment has improved recently and government measures have helped to narrow the current account deficit (CAD). RBI’s assessment of the economy is largely gloomy. On the domestic front, growth has weakened with continuing sluggishness in industrial activity and services. Consumption is beginning to weaken in rural areas and consumption of durable goods hardest hit. While some pick-up of activity is expected on account of agriculture and the upturn in exports, the pace of infrastructure project completion has been subdued.

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