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Monetary policy continues to adopt dis-inflationary path

The Reserve Bank of India has continued to adopt the dis-inflationary path. Explaining the softening of the price trend, it indicated: “Retail inflation measured by the consumer price index (CPI) has eased for the second consecutive month in June. Higher prices of vegetables, fruits and protein-based food items were offset by the muted increase in the prices of non-food items, particularly those of household requisites and transport and communication.”

Emphasising on its policy goal, the central bank “remains committed to the dis-inflationary path of taking CPI inflation to eight per cent by January 2015 and six per cent by January 2016. While inflation at eight per cent in early 2015 seems likely, it is critical that the dis-inflationary process is sustained over the medium-term.” Without being over-ambitious in projecting very low level of inflation, it is projected that we may have to live with a CPI inflation rate of eight per cent next year.  It will be another year’s wait before it touches six. With the monsoon playing truant, it is difficult to predict the performance of the agricultural sector, which is likely to tilt the price equations.

The SLR has been brought down from 22.50 per cent to 22 per cent. As a result of this reduction, about Rs 40,000 crore invested in government securities could be released for lending. Reduction in the SLR is desirable as a strategic policy goal to reduce the reliance of the state governments on the banks as captive investors and for disciplining them for reducing the deficit-financing prowess.


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