The First Quarter review has buttressed exchange rate as a deterministic variable influencing the stance of monetary policy. The policy acknowledges Rupee depreciation to pose systemic risks to macro economic stability and policy formulation
Though Wholesale Price Index (WPI) inflation is on a downward trajectory and is largely within the comfort zone, there are upside risks. Moreover, retail inflation is potentially close to entering the double digit territory
While asserting the inevitability of structural reforms, the policy rightly identifies Current Account Deficit a challenge to grapple with. A reform momentum has started but the key is to sustain the same not only in form but also in substance
Limits to growth has also been acknowledged and GDP growth forecast for FY 14 has been cut to 5.5% from 5.7% earlier. The status quo in policy was widely anticipated and has to be seen in tune with the recent measures announced over the past fortnight
The forward guidance from the policy that the recent liquidity tightening measures are aimed at checking undue volatility in the foreign exchange market and will be rolled back in a calibrated manner augurs well for stability in the financial market. RBI has also asserted that it is ready to use all tools at its disposal for quick response to adverse events.
