Limited scope

Even as Raghuram Rajan reiterated that RBI remains accommodative, the scope for further easing will be limited and will depend on a number of factors


Even as governor Raghuram Rajan reiterated on Tuesday that the Reserve Bank of India (RBI) remains accommodative, the scope for further easing will be limited and will depend on a number of factors.

For instance, the central bank has not factored in the impact of implementation of the Seventh Pay Commission recommendations in its inflation forecast for 2016-17, which is likely to put upward pressure on consumer prices, depending on how it is implemented. Anyway, inflation is unlikely to undershoot RBI’s target on a sustained basis as economic activity picks up.

The policy statement also highlighted why India is being viewed as a “beacon of stability” and the need for strengthening the foundation for sustainable growth. The focus will now be on the Union budget and the government’s willingness to adhere to the fiscal consolidation roadmap, as a deviation will only complicate RBI’s job in an unstable global environment.