Making Sense

The MPC Minutes show an unwavering commitment to a durable decline in inflation esp. in the backdrop of strong economic growth momentum. The macro economic outlook is subject to considerable uncertainties on weather related factors, geopolitical tensions, monsoon progress and commodity price rise among others. Steady disinflation in Core prices and deflation in energy prices has negated the food price rise on the headline inflation but going forward how much space does monetary policy get when core prices start rising as is indicated in the more frequent PMI readings is to be watched out for. What this means for Monetary Policy ? Status quo to be maintained going forward. The MPC will witness changes in its external members, with Ashima Goyal, Jayanth Varma and Shashikant Bhide completing their non extendable term in Oct 2024. Though Dr.  Ashima Goyal has spoken at length about the elevated real rates in her remarks, as the term draws to a close, both Dr. Goyal and Dr. Bhide's poli...

On the India Front, RBI released the minutes of the monetary policy meeting Feb 8, 2024.  The minutes offered nothing new and centered on the themes of demonstrated  Growth Resilience despite the Global Headwinds seen , Improving Global growth outlook,  Food price inflation continues to weigh , Fiscal discipline and quality of Government expenditure non-inflationary , geopolitical concerns pose risks , Challenges to achieving the last mile of inflation targets, markets are front running Central Banks in pricing the extent of accommodation in the year ahead and any premature moves could undermine the success achieved so far,  favorable monsoon holds the key. Additionally,  resilient growth gives the legroom to wait and allow complete monetary policy transmission. Aashima Goyal made an interesting point on the liquidity: in light of elevated real rates measures to ensure WACR stays near the repo rate are required. She recommended active management o...

The earlier article covered the MPC decision  and since I had not covered the Minutes released on Oct 20th, I wanted to sum up the highlights as below: 1. Inflation  Inflation spike seen in July and Aug as transitory Spatio-temporal dispersion in the rainfall could cause volatility in food prices Food inflation may not see sustained easing in Q3 but ample buffer stocks and supply side measures from the Govt likely to buttress the impact of rise in vegetable prices MPC draws comfort from deceleration in Core CPI Outlook uncertain 2. Growth Momentum to Sustain Decrease in Household net Financial Savings and an Increase in Financial liabilities support consumption Q3 to be buoyed by festival demand Private Sector investment is gaining pace Drag comes from the external sector 3. Real Rates are positive 4. Liquidity will be actively managed, incl OMO sales We had seen a sharp sell off in bonds following the mention of OMO sales on Oct 6. The system liquidity continues to be in...

"The details are not the details. They make the design" RBI MPC Meeting minutes: Dr. Ashima Goyal and Prof. Jayanth R. Varma voted for no change in policy rates and favored a change of monetary policy stance to neutral while the other 4 members voted to increase the policy rate by 25 bps and maintained stance to withdrawal of accommodation. Dr. Bhide / Dr. Ranjan / Dr. Patra and the Governor expressed concerns on the sticky core inflation and maintained durable disinflation in prices is a necessary condition to necessitate a pause in hikes.  Fed Meeting minutes: The Federal Reserves also released the minutes of the monetary policy meet on Feb 1, 2023. The committee acknowledged that while significant progress had been made towards a sufficiently restrictive policy stance and inflation pressures have moderated, inflation continues to be elevated and labor markets continue to be tight contributing to wage price pressures. The consensus was for a 25 bps rate hike as a slower p...