5 months ago
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The Reserve Bank of India will refrain from providing any forward guidance on interest rates, given the prevailing uncertainty, RBI Governor Shaktikanta Das said at a post-monetary policy press conference.
“Specifically on the rates, we have very explicitly stated we refrain from giving any forward guidance, considering the kind of uncertainty that lies ahead of us and the future looks very fickle,” Mr. Das said in response to a question. “New shocks can come from anywhere and hit any economy, any time. So, if that is the level of uncertainty, and if our inflation is still quite away from 4%, we just cannot give any forward guidance about whether we will tighten further or we will loosen. Everything depends on the evolving situation. It is not possible in the current situation for any central bank to give forward guidance,” he emphasised.
“Reaching the 4% inflation target should not just be a one-off event, it has to be durably 4% and the Monetary Policy Committee should have confidence that ‘Yes, 4% has now become durable’. So, therefore, you can interpret from that when the stance will change,” Mr. Das, who addressed the media with the central bank’s Deputy Governors, said.
Growth assessment
“The first half’s growth estimates have beaten all estimates, including ours,” Deputy Governor Michael Debabrata Patra observed. “If you look at the high frequency data for October-November, which we use for our nowcasts, they are all very robust right now. If you just take October-November data, growth will exceed 7%. So, at the current time, the 7% real GDP growth projection for this year looks like a conservative estimate,” he added,
Rural demand
“Despite a late kharif harvest in certain parts of the country, two-thirds of rabi sowing is already complete,” Mr. Das said. “Secondly, we have also seen two-wheeler sales post a significant turnaround. For the 42-day-festive period during October and November, their retail sales have grown 20.7%. FMCG volumes in rural segment have also shown improvement, and grew about 6.4% in the second quarter. Right from April onwards, the rural demand for FMCG is steadily picking up. Interestingly, the demand for MGNREGA work has declined for the first time in this financial year during November by about 4.6%. That is why we feel there are signs that rural demand is also turning around.”
Investment scenario
“Government capex continues to be very strong,” Mr. Das observed. “In fact, the general government capex, undertaken by both central government as well as the State governments, have grown 36. 7% during April to October. Secondly, private capex is also showing signs of revival particularly in sectors like petroleum, steel, cement and chemicals. Capacity utilisation has now reached a kind of a threshold… it is higher than the long period average at 74%. So, it has reached a point where we can expect private investment also to start picking up. Quite a bit of investment is already taking place by private manufacturing companies, reflected in the fact that fixed asset investments by listed private manufacturing companies grew 10.5% in the first half of the year. A number of companies are using their own internal reserves and surpluses to invest, they’re not approaching the bank or resorting to other kinds of fund-raise. The high frequency indicators of investment, such as steel consumption, cement production, and very importantly, imports of capital goods, are showing good growth. All these indicate that the investment cycle should continue into the future,” he added.
