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Monetary Policy Minutes Include ECRI


The Reserve Bank of India (RBI) on Wednesday released minutes of the meeting of Monetary Policy Committee (MPC) held between June 4 and June 6, 2018.

The RBI's MPC unanimously voted to raise interest rate by 25 basis points at the meeting…which was attended by all the members.

Pami Dua reasoned, "The upside risks to inflation include geopolitical risks associated with crude oil prices, increase in other global commodity prices, implementation of HRA revisions (state governments), increase in kharif minimum support prices, fiscal slippage and a weaker Indian rupee. The downside risks include forecast of a normal monsoon, and moderation in global commodity prices due to slowdown in global growth."

Casting doubts on global growth recovery, Dua said the global manufacturing Purchasing Managers’ Index fell to a nine-month low in May, underscoring a moderating global industrial growth outlook. Growth in ECRI’s Indian Leading Exports Index is in a deepening cyclical downswing, suggesting that Indian export growth will remain in a cyclical downtrend at least for the next couple of quarters. Moreover, India’s domestic growth outlook is lacklustre, at best, according to ECRI’s Indian Leading Index.

She said, "In the meantime, with underlying inflation pressures in a cyclical upswing, according to ECRI’s US Future Inflation Gauge, US inflation has also been on the rise, and is now at the Federal Reserve’s 2% inflation target. At the same time, the unemployment rate has dropped to an 18-year low, spurring the Fed to keep tightening monetary policy."

She concluded, "In India, with hardening of actual inflation, rising inflation expectations along with prevailing upside risks to inflation, I vote for an increase in the repo rate by 25 basis points while retaining the neutral stance."

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