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FINANCIAL EXPRESS: Further monetary easing may be limited to
25bps in 2016
As anticipatedप्रत्याशित, the
Reserve Bank of India (RBI) desisted
रोकना from
changing its key policy rate in the final bimonthly द्विमासिक monetary policy review
for 2015-16.
For one, the central bank is awaitingका इंतजार clarity regarding the
fiscal stance मुद्रा and
structural reforms संरचनात्मक सुधारों that the Union
government would adopt in the forthcomingआगामी Budget for 2016-17. Moreover, its expectation of a mild कोमल pick-up in growth of
gross value added (GVA) at basic prices to 7.6% in 2016-17—from its projection
for 2015-16 of 7.4% with a downward bias—supported पूर्वाग्रह का समर्थन किया the status quo यथास्थिति. Additionally, RBI
continues to anticipate आशा that
CPI inflation would evolve in a manner consistentसंगत with the previously announced target of 5.0% in March 2017.
In the Union Budget for 2015-16, the government had committed to
paringकतरन its
fiscal deficit from 3.9% of GDP in 2015-16 to 3.5% of GDP in 2016-17. This task
has been made more challenging by the looming धुंधला दिखाई देना pay revision based on
the Seventh Central Pay Commission’s recommendations, the impact of which is
estimated at 0.65% of GDP. Therefore, the extent of fiscal compression दबाव to be undertaken in the
coming year is substantial ठोस. To an
extent, lower global fuel prices would both boost indirect tax revenues and
dampen गीला हो जाना the outgo रवानगी on fuel and fertiliser
subsidies. The mix of other revenue augmentation वृद्धि and expenditure correction measures undertaken by the
government to avoid a fiscal slippage फिसलन would be crucial. In light of the inevitability अनिवार्यता that curtailed कटौती spending may dampen उत्साहहीन करना growth impulses आवेगों, the central bank
highlighted पर प्रकाश डाला that it would watch for
growth-supportive structural reforms in the upcoming Budget.
Moreover, as has been highlighted by RBI in the past, structural
reform of small savings interest rates that would make them more market-linked
is still awaited. This would aid सहायता in improving the transmission हस्तांतरण process, and complement पूरक the measures taken by RBI such as the impending आसन्न introduction of the
marginal cost of funds based lending rate mechanism.
Liquidity conditions have tightened over the last two months on
the back of advance tax outflows, and a pick-up in bank credit especially in
sectors like retail and SME, while deposit mobilisationsजुटाना remain subdued अधीन किया हुआ
. Subdued government spending, as evinced दिखाई by the sharp increase in
the surplus maintained with RBI in January 2016, has also contributed to
tightening systemic liquidity. However, RBI has infused संचार adequate पर्याप्त liquidity through term
repo and open market operations and ensured that the money market rates
remained close to the benchmark policy rates. We expect RBI to continue to
provide adequate liquidity to meet the requirements of productive sectors while
managing inflationary expectations.
Various high frequency indicators suggest a moderation in GVA
growth in Q3FY16 as compared to 7.4% in Q2FY16, including the slowdown in
growth of the core sector output, railway freight, diesel consumption, etc.
Moreover, the contraction संकुचन in
non-oil merchandise exports (in dollar terms) deepenedगहरा in Q3FY16 as compared to
Q2FY16. In contrast, the year-on-year growth of automobile production firmed up
to an extent in Q3FY16 on a sequential basis. In ICRA’s view, growth of GVA at
basic prices would be restricted to 7.2% in 2015-16, before rising to 7.7% in
2016-17, benefiting लाभांवित from a
pick-up in consumption demand post the pay revision. Moreover, a cyclical
upturn चढ़ाव in
agriculture following from the expectation of a normal monsoon in 2016 would
restore the purchasing power of the farm sector and generate an uptick in rural
demand. Nevertheless, a broad-based pick-up in investment remains distant despite
the reforms undertaken so far by the government.
Although CPI inflation firmed up to 5.6% in December 2015, it is
likely to cool in January 2016 with the decline in retail prices of various
food items, petrol and diesel. As a result, the CPI inflation print for January
2016 (to be released in mid-February 2016) is expected to undershoot the target
of 6.0%. In addition to the fiscal and inflationary impact of the pay revision,
uncertainty अनिश्चितता
related to the monsoon, the increase in minimum support prices and efficacy प्रभावकारिता of food management, as
well as the extent of depreciation मूल्यह्रास की हद in the rupee are other
factors posing प्रस्तुत risks
to the achievement of the target to reduce CPI inflation to 5.0% in March 2017.
On the other hand, softness in global commodity and crude oil prices and,
consequently, domestic fuel prices would keep CPI inflation moderate मध्यम.
While RBI continued to describe its own stance as accommodative उदार रुख के रूप में, it characterised the
expected inflation trajectory प्रक्षेपवक्र as
inertial जड़त्वीय,
without factoring in the impact of the Pay Commission award. Presuming अपने ऊपर भरोसा रखनेवाला a normal monsoon in 2016
and fiscal consolidation along the previously announced trajectory, we expect
further monetary easing सहजता to be
limited to 25bps in 2016.
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