Editorial : Tricky call ahead: on RBI policy stance

The RBI faces a tough call on setting policy rates given the inflation and liquidity concerns
The Reserve Bank of India’s Monetary Policy Committee (MPC) is set to meet for three days, October 3-5, to decide its policy stance. With the U.S

. Federal Reserve now firmly set on its policy normalisation(सामान्यीकरण) path and having, just last week, raised(बढ़ोतरी) interest rates by 25 basis points, the RBI would normally be expected to increase benchmark borrowing costs in India in a bid( बोली) to prevent(रोकना/बाधा डालना) heightened outflows of rate arbitrage(पंचायत/ऋणपत्र का क्रय-विक्रय) seeking foreign portfolio capital. Additionally(अधिकतर), the rupee’s depreciation(मान गिरना/घिसावट) of more than 12% against the dollar in 2018, combined(मिश्रित/मिलाया हुआ) with crude oil’s continuing upward march — Brent futures closed at $82.73 a barrel on Friday — raise the risk of India importing inflation from the higher price for its overseas energy purchases, making the argument for a rate hike even more compelling. After all, given its unequivocal(स्पष्ट/साफ़) inflation-targeting mandate, the MPC would be well justified in keeping its sights firmly trained on the retail inflation(मुद्रा-विस्तार) trend and household expectations for future price gains. Also, while headline CPI inflation eased(ढील/) appreciably(पर्याप्त रूप) in August to 3.69%, core retail price gains, which exclude the food and fuel and light groups, was still running 190 basis points higher at 5.59%. It was precisely(निश्चित रूप से/विधि पूर्वक) this core element that Deputy Governor Viral Acharya cited in his statement at the MPC’s August meeting when he said: “Underlying(आधारभूत/मुख्य) inflation as reflected in ‘ex food fuel’ segment, especially in petrol and diesel, transportation (including fares), education fees, health services and clothing persists(बनी रहती है/बचना), and does not augur well for headline inflation going forward.” Food prices that, surprisingly, have remained benign, helping slow overall CPI inflation, could also start hardening once the impact of the higher payout on the minimum support price for kharif crops kicks in.

However, recent developments in the domestic financial system that have triggered(जन्म दिया/शुरू हो रहा) concerns(चिंताओं )about the health of the credit market are likely to roil the MPC’s rate-setting calculus. First, on September 23, the RBI issued a one-sentence press release that along with the capital markets regulator it was “closely monitoring” developments in the financial markets and they were ready to take “appropriate(उचित ) action(कार्रवाई)”. Four days later, on September 27, it announced a relaxation(विश्राम//रियायत in the Liquidity Coverage Ratio for banks in a move to soothe(शांत करना/हल्का करना))concerns about adequacy of liquidity. Read together, the message from the banking regulator appears to be that it is keen to ward off any risks to the availability(उपलब्धता) and cost of short-term credit from any unforeseen financial marketvolatility(अस्थिरता/परिवर्तनशीलता). The tweak to the LCR norms is expected to free up close to ₹2.5 lakh crore in additional liquidity, with half of it, or ₹1.25 lakh crore, becoming available to the banking system at the more affordable(सस्ती) repo rate of 6.5%. It is this concern about the financial markets that will make the MPC’s task just a little trickier(जटिल काम).

Important Vocabulary

1.Affordable(सस्ती) 
Synonyms: cheap, economical, fair, low-cost, modest
Antonyms: costly, expensive, pricey, unaffordable, exorbitant

2.Unequivocal(स्पष्ट/साफ़) 
Synonyms: absolute, apparent, categorical, clear-cut, decisive
Antonyms: ambiguous, conditional, disputable, doubtful, dubious

3.Eased(ढील/) 
Synonyms: abate, allay, ameliorate, calm, expedite
Antonyms: agitate, block, cease, check, condemn

4.Persists(बनी रहती है/बचना)
Synonyms: continue, endure, go on, linger, persevere
Antonyms: cease, discontinue, give up, go, halt

5.Precisely(निश्चित रूप से/विधि पूर्वक) 
Synonyms: absolutely, accurately, as well, correctly,literally
Antonyms: imprecisely, questionably, unsure

6.Soothe(शांत करना/हल्का करना)
Synonyms: allay, alleviate, appease, assuage, cool
Antonyms: aggravate, agitate, incite, increase, intensify

7.Trickier(जटिल काम)
Synonyms: complex, critical, delicate, intricate, knotty
Antonyms: certain, direct, easy, healthy, insensitive