#237 Looking Under the Hood

<p><em>Course Advertisement:</em> <em>Admission to Takshashila’s Graduate Certificate in Public Policy (GCPP) programme is now open. Start your 2024 with a course that will equip you with the tools to understand the world of public policy. Check all details </em><em>here</em><em>. </em></p><p>India Policy Watch: In Search Of Growth</p><p><em>Current policy issues in India</em></p><p><em>— RSJ</em></p><p>A quick macro update. The RBI’s Monetary Policy Committee (MPC) met this week and, as was widely expected, kept the repo rate unchanged at 6.5 per cent for the fifth consecutive time. The Governor gave the usual explanation of global political risk, higher volatility in global financial markets, and continued inflationary expectations as the reason for keeping the policy stance unchanged as ‘withdrawal of accommodation’. And the <a target="_blank" href="https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56887">Governor was quite clear </a>that there is no ‘inadvertent’ signalling to the market that it has actually moved to a ‘neutral’ stance with its prolonged pause on rate hikes:</p><p>“Reaching 4 per cent (inflation target) should not just be a one-off event. It has to be durably 4 per cent and the MPC should have confidence that 4 per cent has now become durable.</p><p>We are very careful in our communication. There is no inadvertence in any of our communication. So, if somebody is assuming that it is a signal to move towards a neutral stance, I think it would be incorrect.”</p><p>Well, that takes care of any possibility of a rate cut before next year's elections. And what’s the need, really? Between now and the elections, there’s always an inflation risk on vegetable and food prices. Also, while crude oil price has been on a downward trend during this year which has helped on the inflation front, there’s no guarantee how that will trend given the global geopolitical situation remains uncertain. Most importantly, what’s the need to signal any rate cut when the GDP growth numbers are coming in signi