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3
October 2016
A
day before the Reserve Bank of India announces 2016-17's fourth monetary
bi-monthly policy, rating agency Fitch said it is waiting to see how the
newly-formed Monetary Policy Committee tackles it, hinting that a low inflation
targeting could positively impact the country's rating.
"The
inflation targeting framework now in place, should reduce the impact of
pressures, but it will be interesting to see how this will play out in the
Monetary Policy Committee (MPC), in which members appointed by both the
government and RBI, will have a vote on monetary policy," Thomas
Rookmaaker, Director, Asia-Pacific Sovereigns Group, Fitch Ratings, told IANS. The Total Investment & Insurance Solutions
"Structurally
low inflation would positively impact the sovereign rating profile as it would
improve the investment climate and, hence, contribute to sustainable
growth," he added.
Fitch
implied that it expected no rate cuts with a focus on containing inflation in
Tuesday's policy, which will be also the first under the leadership of new
Governor Urjit Patel.
"The
fact that Dr. Patel has served as deputy governor in the past three years,
suggests continuation of the current policy direction in the years ahead. Dr.
Patel was part of the team at RBI that set in motion significant policy changes
to deal with both high inflation and weak bank balance sheets, including
through the set-up of new policy frameworks," Rookmaaker told IANS in an
e-mail interview. The Total Investment & Insurance
Solutions
The
elevation of Patel has raised expectations among those who were critical of his
predecessor Raghruam Rajan for not easing enough the monetary policy by cutting
rates, though Patel's moorings are as monetarist and he is considered to attach
the same importance to inflation control. The
Total Investment & Insurance Solutions
The
MPC, which is now tasked with the job of taking a call on the interest rates,
would theoretically target the range around the mid-point and not one of the
outer points specifically, though it was early to tell if inflation in practice
will remain skewed to one side of the range, Rookmaaker said. The Total Investment & Insurance Solutions
The
government has set an annual inflation target of four per cent, plus or minus
two percentage points. The Total Investment
& Insurance Solutions
"The
inflation target range that the RBI will use in the medium term seems rather
broad, in the sense that 2 per cent seems quite low and 6 per cent quite high
for an emerging economy like India. But it seems to make sense to have a rather
broad range around the 4 per cent mid-point, as food and oil price movements
can have a large impact on headline inflation," Rookmaaker said. The Total Investment & Insurance Solutions
Wholesale
food price inflation was 5.3 per cent during financial years 1996 to 2005 but
increased to 9.2 per cent between financial years 2006 and 2016. Clearly, the
fight on the inflation front, particularly food inflation, is far from over.The Total Investment & Insurance Solutions
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