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RBI should stay on its current course till monetary stability is secured on a sustainable basis
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The Indian economy is limping back to normalcy: growth has picked up in the first quarter, business confidence has improved, the decline in global oil prices could help the government keep the fiscal deficit within its budgeted level, and core inflation seems to be easing. Political stability as well as the fact that most other emerging markets are looking less impressive in comparison have made India more attractive to foreign investors.
The Reserve Bank of India (RBI) is due to announce its monetary policy this week. There is as yet no reason for it to begin easing. Two concerns dominate. First, inflation continues to be a key risk as it is still too high by global standards. Second, emerging markets have been again looking jittery over the past two weeks as the US moves closer to interest rate hikes. Neither of these conditions is conducive to a rate cut.
RBI should stay on its current course till monetary stability is secured on a sustainable basis.
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