Sunday, October 30, 2011

Notes from RBI Post Policy Press Conference Call

Here are some notes taken  from RBI Post Policy  Press Conference Call

  • RBI  monetary policy is determined independently of the government borrowing requirement to certain extent
  • As Fiscal deficit is a variable in inflation, RBI takes into account of Government borrowing requirement   while estimating  inflation numbers, in projecting inflation outlook and in calibrating RBI policy.
  • RBI will not use exchange rate as an instrument for inflation management with recent depreciation of the Rupee has added to inflation pressures but this depreciation is not due to any change in our economic situation, it is due to factors outside of India 
  •  Because it is factors outside of India, it might reverse in course of time when the external situation will have adjusted back.
  • There is  the issue of the prepayment which banks are charging, which they should not do. RBI has asked  banks to look into it waiting for a response from banks
  • This was the main point in the 10 point formula recommended by Damodaran Committee 
  • RBI feels the level of fiscal deficit is going to be one of the risk factors in the inflation outlook
  • So if the government conforms to 4.6% that is, one level of risk, but if borrowings go beyond that and the fiscal deficit exceeds that, that will increase the risk for inflation because fiscal expansion is inflationary. 

Here are the Risks to inflation

  • One is  fiscal deficit,
  •  Demand pressures and how they might respond to the monetary policy action that RBI took 
  • Issue of commodity prices, especially in oil price how that might settle because it’s not moderated as much as it should have, given the global situation. In these last few weeks inching back up, so the gain or comfort from the oil prices has not been very much. 
  • Then there is this structural food component. There is also suppressed inflation.
  • The electricity prices have not been adjusted because coal prices have not been adjusted.
  • Petroleum sector prices have not been adjusted, and they do not reflect the current international price. Those are all the variables on the inflation outlook.

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