RBI Policy April 2014 - Review

The RBI has kept all rates unchanged on 1^st April 2014, as was expected. It has maintained status quo in its first bi-monthly review of monetary policy whereby the reverse repo, repo and the MSF rate continue to remain at 7.00%, 8.00% & 9.00% respectively. However, it reduced liquidity available under overnight repo by 0.25% of NDTL of banks and moved this amount to the 7 and 14 day term repo window.

The central bank’s view going forward is that, it sees moderating inflation and is trying to achieve a target of 8%  CPI by Jan 2015. 

Nevertheless it is also skeptical about upside risks from upcoming monsoons (which can be anybody’s guess), outcome of the national elections and the fiscal policy (new central govt. budget for the remaining year), geo-political events and their impact on the commodity prices.

As already highlighted in my earlier blogs, RBI has very limited firearm with which it can tame the inflation. The onus lies more with the central government which needs to ...

make policies and also streamline the supply chain logistics, so as to ensure smooth and early transfer of farm produce to our dinner tables(farm-to-fork logistics). This will not only avoid piling up of commodities in one place but also avoid wastage by not rotting up unnecessarily in warehouses.

After hearing what the RBI Governor had to say on the policy front, I expect the inflation to be upon a downward trajectory. More so not because the supply chain has been managed or there have some drastic policy changes, but because of the slowing growth the demand has subdued which has in turn reduced pressure on the inflationary commodities.

Going forward, the focus from now on will be more on the new government on how it goes about its fiscal policies and more importantly how it goes about executing and effectively implementing these on ground.