As the Indian economy strives to attain its rightful place in the global economy, stronger policy frameworks across domains, and not just limited to monetary policy, will be pivotal in its journey, RBI Governor Sanjay Malhotra has said, adding that on our part, we will continue to be agile and proactive in providing a facilitative monetary policy based on incoming data and the evolution of the growth-inflation dynamics.
As always, we will have a clear, consistent and credible communication backed by actions necessary for the task at hand, he said in the latest RBI Bulletin.
“Going ahead, the Reserve Bank will continue to be nimble and flexible in its liquidity management. We will endeavour to maintain sufficient liquidity in the banking system so that the productive requirements of the economy are met and transmission to money markets and credit markets remains smooth,” he noted.
Favourable rainfall and temperature conditions bode well for the kharif agriculture season. An increase in real rural wages may support rural demand in the second half of the financial year.
“Coupled with the benign financial conditions, ongoing transmission of rate cuts, supportive fiscal measures and rising household optimism, the environment is conducive for holding up aggregate demand. On the other hand, persisting uncertainties related to India-US trade policies continue to pose downside risk,” the RBI Bulletin noted.
Inflation outlook for the near term has become more benign than anticipated earlier. Headline inflation, driven by muted food price pressures supported by favourable base effects, are likely to soften further below the 4 per cent target in Q2 before inching up in the last quarter of the financial year.
“Overall, the average headline inflation this year is expected to remain significantly below the target. Monetary policy, going forward, would continue to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path,” the Reserve Bank Bulletin emphasised.
Financial conditions remained congenial and supportive of domestic economic activity. India’s sovereign rating upgrade by S&P bodes well for capital inflows and sovereign yields, going forward, it added.
