A valid pause: on RBI holding rates

While holding rates, the RBI has wisely stuck to its policy stance of ‘calibrated tightening’
The Reserve Bank of India’s decision to leave interest rates unchanged, given easing inflation(मुद्राप्रसार/मुद्रास्फीति) and the slowdown in economic momentum(गति,), was both expected(अपेक्षित) and reasonable(उचित/यथोचित). In fact, the RBI was prompted(प्रेरित करना) to sharply(शीघ्रता से/कठोरता से) lower its projection( प्रक्षेपण) for price gains after an unexpected softening in food inflation and a collapse(गिरावट)in oil prices in a surprisingly short span of time — the price of India’s crude basket tumbled almost 30% to below $60 by end-November from $85 in early October. The monetary policy committee (MPC) now estimates retail inflation in the second half of the fiscal year(वित्तीय वर्ष) to slow to 2.7%-3.2%, at least 120 basis points lower than its October forecast of 3.9%-4.5%. And it foresees(उम्मीद) the softness(कोमलता) in prices enduring(टिकाऊ)through the April-September half of next year, when headline inflation is projected to hover around its medium-term target of 4% and register in a 3.8%-4.2% range. The MPC’s decision to stand pat on rates must also have been bolstered(बल मिला ) by the findings in the RBI’s November survey of households’ inflation expectations(उम्मीदों/अपेक्षा): the outlook for price gains, three months ahead, softened by 40 basis points from September. On growth(विकास), the monetary(मौद्रिक) authority(प्राधिकरण) has largely stuck with its prognosis(पूर्वानुमान/रोग का निदान ) from October, while flagging both external and domestic(घरेलू/आंतरिक) risks to momentum(गति) as well as the likely sources of tailwinds(अनुकूल ). Among the positives cited, beyond a likely boost to consumption(खपत) demand and corporate earnings from softer fuel costs, are two key data points from the RBI’s own surveys. Capacity utilisation(उपयोगीकरण) rose to 76.1% in Q2, higher than the long-term average of 74.9%. Also, industrial firms reported an improvement(सुधार/उन्नति) in the demand outlook for Q4. Still, the forecast for full-year GDP growth has been retained(बरकरार रखा/रोक रखना) at 7.4%, on the back of an expected 7.2%-7.3% second-half expansion(विस्तार/वृद्धि), with the risks weighted to the downside.

Interestingly(दिलचस्पी ), and justifiably so, the RBI has opted to keep the powder dry by sticking to its policy stance of ‘calibrated tightening’. Given that its primary remit(छोड़ना/छूट देना) is to achieve and preserve(संरक्षित ) price stability(मूल्य स्थिरता ), the central bank is wary of the uncertainties(अनिश्चितताओं/संदेह) that cloud the inflation horizon. For one, with the prices of several food items at “unusually low levels”, the RBI reckons(गणना करना) there is the clear and present danger of a sudden reversal(उलटाव/परिवर्तन), especially in prices of volatile(अस्थिर) perishable(विनाशकारी) items. Also, the medium-term outlook for crude oil is still quite hazy, with the possibility of a flare-up in geopolitical tensions and any decision by OPEC both likely to impact supplies. Buttressing this reasoning, households’ one-year-ahead inflation expectations remain elevated and unchanged from September. Most significantly, the central bank has once again raised a cautionary(चेतावनी देनेवाला) signal to governments, both at the Centre and in the States. Fiscal(वित्तीय/राजस्व) slippages risk impacting(प्रभावित) the inflation outlook, heightening market volatility and crowding out private investment. Instead, this may be an opportune time to bolster macroeconomic fundamentals through fiscal prudence.

Important Vocabulary

1. Reasonable(उचित/यथोचित). 
Synonyms: acceptable, cheap, equitable, fair, feasible
Antonyms: assured, biased, bold, invalid, irrational

2. Projection( प्रक्षेपण)
Synonyms: bump, bunch, eaves, extension, hook
Antonyms: depression

3. Enduring(टिकाऊ
Synonyms: abiding, surviving, permanent

4. Domestic(घरेलू/आंतरिक) 
Synonyms: private, calm, family, home, pet
Antonyms: alien, business, foreign, industrial

5. Remit(छोड़ना/छूट देना) 
Synonyms: address, consign, dispatch, forward, mail
Antonyms: hold, keep, receive, retain, encourage

6. Retained(बरकरार रखा/रोक रखना)
Synonyms: maintained, received, saved, confined, contained
Antonyms: extroverted, lost, outgoing, disengaged, let go

7. Improvement(सुधार/उन्नति) 
Synonyms: advance, advancement, change, development, enhancement
Antonyms: decline, decrease, deterioration, diminished, failure

8. Cautionary(चेतावनी देनेवाला) 
Synonyms: admonishing, admonitory, advisory, cautioning, preventive

9. Reversal(उलटाव/परिवर्तन)
Synonyms: U-turn, annulment, cancellation, repeal, switch
Antonyms: approval, enactment, validation

10. Preserve(संरक्षित ) 
Synonyms: conserve, defend, freeze, keep, perpetuate
Antonyms: abandon, attack, endanger, give up, halt




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