Black box monetary policy of August 14

Abstract

Monetary policy is an important tool in any economy and especially so when an announcement follows the first Budget of the new government. The fiscal policy stance as delineated in the Union Budget is supportive of growth, employment generation and fiscal consolidation imparting confidence to the market about the direction that would be pursued in the next few years. The global scenario is not so clear. The global growth rate estimates for 2014 have been lowered by the IMF because of weak performance in the US as well as in a number of emerging countries. The downside geopolitical risks continue to cloud global markets in addition to the continuation of tapering by the US Fed and announcement of negative policy rates by the ECB. Amidst such a mixed economic situation, the recent monetary policy announced by RBI has continued with its high policy rates which were raised in the first place on the basis of high inflation. Despite the fact that inflation measured by the consumer price index (CPI) has moderated for two months, wholesale price index (WPI) is also recording lower rates and the progress of monsoon has been satisfactory, the policy rate has not been lowered. The heightened interest rates have been maintained, arguably for encouraging savings and holding interest rates in the positive zone. Read more at: https://www.financialexpress.com/archive/black-box-monetary-policy-of-august-14/1278219/