Dun & Bradstreet's reaction on RBI's monetary policy: Quote from Dr. Arun Singh, Lead Economist, Dun & Bradstreet India
“Given hardening and uncertainty around inflation, the RBI has raised the repo rate. This can be considered as front loaded and will help to reduce the pass through of the current and emerging inflationary pressures. The upside risks to inflation currently emanates both from internal and external factors.
The elevated crude oil prices, impact of increase in MSPs and demand pressures from election related spending also pose risks to fiscal slippage. The headline inflation has stayed above the targeted level of 4.0% for 8 consecutive months, even as food prices has moderated in the recent period. The tightening of global liquidity will continue for some time, impacting rupee and thereby imported inflated for emerging countries like India. Further, there is an increased probability of Fed rate hike and consequent firming up of dollar.
The pass through of currency volatility and the rising energy prices has driven cost push inflation not only in India but also in other emerging countries even as commodity prices have softened. While the rate hike was, in principle, the right approach to curb inflationary expectations and pressures, the only concern is that the increase in interest rates should not weigh down the revival in the industrial production and stifle the revival in domestic demand.
Going forward, future policy action will be dependent on further information on trade policies adopted by US, spatial distribution of monsoon, impact of MSP on actual inflation, election related spending and movement in global crude oil price.” – Dr. Arun Singh, Lead Economist, Dun & Bradstreet India
