RBI flags growth concerns even as hike rolls in

RBI flags growth concerns even as hike rolls in

Mumbai: The 25 basis points hike comes as no surprise. But what has taken investors back is the hawkish tone adopted in the Reserve Bank of India’s mid-quarter policy statement.

Read the statement here

It’s a refreshingly brief, to the point statement that cannot be compared to the bulky, obscure and deeply nuanced documents that come with every quarterly policy.

But there are a couple of interesting points it has raised.

It is the first time in this recent rate hike cycle that RBI has so clearly mentioned about risks to growth from high inflation. Sure, RBI mandarins have been warning about this in various fora. But the language used is unusually sharp this time.

..continuing uncertainty about energy and commodity prices may vitiate the investment climate,(emphasis ours) posing a threat to the current growth trajectory

The statement continue:

…continue to rein in demand-side inflationary pressures while minimizing risks to growth.

So risks to growth has arrived on RBI radar, although it is not an immediate threat as the central bank assures later.

The bank is also concerned about investments getting a hit due to the uncertainty of commodity prices. The RBI is pursing its lips at the government’s oil subsidy estimates as well.

All things said, just a fortnight before the fiscal ends, RBI has now again revised its inflation projection to 8% from 7% in January policy which was preceded by 5.5% earlier. Honestly, 8% is what it should be have been in the first place, given the volatility of the commodity price situation and increased money in the hands of people due to the rural job guarantee schemes. Even the Economic Survey mentioned this. RBI, it seems, was not clued in.