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Holding the rate: On RBI’s monetary policy decision

The RBI has rightly opined that premature action risks ‘disruptive policy reversals later’

The Reserve Bank of India’s decision to keep the policy interest rate unchanged, and reaffirm its “neutral” policy stance, clearly indicates that policymakers at the central bank are singularly focussed on their primary remit of ensuring price stability while supporting economic growth. That the RBI’s Monetary Policy Committee has chosen to do so in the face of clamour for a rate cut, and Consumer Price Index data and the bank’s own survey of households’ inflation expectations appearing benign, points to the MPC’s determination to reassert the central bank’s independence, especially in the rate-setting realm. Laying out its reasoning for opting to remain “watchful”, the RBI has raised pertinent questions relating to the outlook for price stability, the foremost being whether the “unusually low momentum in the reading for April will endure”. It posits that the easing trend in inflation, excluding food and fuel, may be transient given its vulnerability to rising rural wage growth and strong consumption demand. And the elephant in the room, in the MPC’s opinion, is the real prospect of inflationary spillovers from the rising risk of fiscal slippages caused by farm loan waivers — Uttar Pradesh has set the stage, and Maharashtra’s government has vowed to come up with the State’s largest-ever. Observing that inflation has fallen below 4% only since November 2016, the RBI has reiterated its commitment to keeping the headline reading close to that figure on a “durable basis”.

The MPC acknowledges that the latest monsoon forecast augurs well for the agriculture sector, and when viewed in conjunction with continuing robust government spending, it ought to help undergird overall momentum in the economy. The RBI’s business expectations index based on its industrial outlook survey of April points to upbeat prospects for the manufacturing sector in the second quarter of the current fiscal year, spurred by rising rural and overseas demand. However, on the growth front too the RBI’s policy panel has opted for caution given that the Central Statistics Office’s GDP and GVA (gross value added) data released last month suggest that the effects of demonetisation have lingered on. The RBI has accordingly cut its GVA growth forecast for the year ending in March 2018 by 10 basis points to 7.3% and flagged the risks that global political uncertainties, rising input costs and wage pressures and the twin balance sheet problem (an over-leveraged corporate sector and stressed lenders) pose to a revival in private investment demand and a more durable economic expansion. Spelling out the priorities, the MPC has said monetary policy can be effective only when private investment has revived, the banking sector’s health is restored and infrastructure bottlenecks are removed. To do otherwise “risks disruptive policy reversals later and the loss of credibility” of the RBI. Source: THE HINDU

IMPORTANT WORDS FROM ARTICLE & THEIR MEANING

1) Reaffirm (साबित करना) - Re-af-firmMeaning - confirm the validity of (something previously established) - Verb
Synonyms 
- proclaim, confirm
Antonyms - conceal, deny
Example -
 Teachers reaffirm their commitment to their pupils and schools.
2) Stance (मुद्रा) - St-an-ceMeaning - the way in which someone stands, especially when deliberately adopted (as in cricket, golf, and other sports), a person's posture - Noun
Synonyms 
- attitude, posture
Example -
 The boxer took up a fighting stance.
3) Remit (छोड़ना) - Rem-itMeaning - cancel or refrain from exacting or inflicting (a debt or punishment) - Verbthe task or area of activity officially assigned to an individual or organization - Noun
Synonyms - 
consign, dispatch
Antonyms - keep, retain
Example - 
Please remit payment by cheque.
4) Benign (सौम्य) - Ben-i-inMeaning - gentle and kind - Adjective
Synonyms 
- benevolent, amiable
Antonyms - harsh, rough
Example - 
They are normally a more benign audience.
5) Realm (क्षेत्र) - Rel-mMeaning - a field or domain of activity or interest - Noun
Synonyms - 
dimension, domain
Antonyms - sky
Example - 
Her interests are in the realm of practical politics.
6) Posit (मानती) - Po-sitMeaning - put forward as fact or as a basis for argument - Verb
Synonyms - 
conclude, conjecture
Antonyms - abstain, disregard
Example - 
The students were asked to posit their ideas about the dance through the school suggestion box.
7) Transient (क्षणिक) - Trans-e-antMeaning - lasting only for a short time, impermanent - Adjectivea momentary variation in current, voltage, or frequency - Noun
Synonyms - 
ephemeral, fleeting
Antonyms - enduring, lasting
Example - 
The transient nature of speech does not permit editing of the speech signal.
8) Reiterated (दोहराया) - Re-it-rate-edMeaning - say something again or a number of times, typically for emphasis or clarity - Verb
Synonyms - 
echo, renew
Antonyms - take back
Example - 
He reiterated his opposition to the creation of a central bank.
9) Augurs (शुभ संकेत) - Aug-ourMeaning - (of an event or circumstance) portend a good or bad outcome - Verb(in ancient Rome) a religious official who observed natural signs, especially the behaviour of birds, interpreting these as an indication of divine approval or disapproval of a proposed action - Noun
Synonyms - 
diviner, forecaster
Example - 
The quality of your work augurs well for the examinations next month.
10) Clamour (चिल्लाना) - klay-merMeaning - a loud and confused noise, especially that of people shouting - Verba loud and confused noise, especially that of people shouting - Noun
Synonyms - 
yell, scream
Antonyms - calm, peace
Example - 
During the annual meeting, the disappointed shareholders are expected to clamor for the president’s resignation.
11) Fugitive (पलायक) - Few-gi-tivMeaning - a person who has escaped from captivity or is in hiding - Noun
quick to disappear, fleeting - Adjective
Synonyms - elusive, fleeting
Antonyms - enduring, confronting
Example (English) - Fugitive Vijay Mallya's presence at a 'charity dinner' organised by Kohli's foundation forced Indian team to leave early.
Example (Hindi) - कोहली के फाउंडेशन द्वारा आयोजित 'चैरिटी डिनर' में भगोड़े विजय माल्या की उपस्थिति ने भारतीय टीम को जल्दी चले जाने के लिए मजबूर किया।

Now considering the article above as a Reading Comprehension question, try to answer the following -
  • What is the advantage of Bi-Monthly?
  • Why the policy interest rate has been kept unchanged?
Given below are some words to check your vocabulary you can make sentences with those words in the comment section which will be reviewed by us.
  • Pertinent
  • Slippages
  • Robust 
  • Disruptive
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