RBI changes policy stance on risks in global crude & financial markets

The Reserve Bank of India, maintaining a status quo on interest rates in its policy review, changed its stance from neutral to "calibrated tightening", thereby ruling out the possibilty of a rate cut for the current year.

The change in stance shows that the central bank is exercising utmost caution going forward as it flagged key risks to the inflation and growth outlook.

Among the risks, the RBI stated that rising oil prices, escalating trade tensions and a tightening of global financial conditions serve as headwinds to growth and inflation outlook.


Even as it revised downwards the inflation projection for second half to 3.9-4.5 per cent from 4.7-4.8 per cent earlier, the RBI touched upon the factors that pose upside risks. The RBI said that the Indian basket of crude has "increased sharply" by $13 since the last policy. It also highlighted the risks associated with a volatile international financial markets with currencies in the emerging market "depreciating significantly".

"Inflation in many key EMEs has risen on surging crude prices and currency depreciations, caused by a firm dollar and domestic factors," the RBI said in its policy statement.

"Global financial markets continued to be affected by monetary policy stances in major AEs, the spreading of contagion risks from specific EMEs, and geopolitical developments," the RBI added.

Taking note of improving capacity utilisation, larger FDI inflows and a positive climate for private investment, the RBI maintained the growth forecast for the current fiscal at 7.4 per cent.

"Private consumption has remained robust and is likely to be sustained even as the recent rise in oil prices may have a bearing on disposable incomes. Improving capacity utilisation, larger FDI inflows and increased financial resources to the corporate sector augur well for investment activity," the RBI stated.