RBI expects stable inflation; urges investment promotion to sustain growth

The RBI predicts a relatively stable inflation scenario for the next year. In its latest monetary policy revision where the key rates were kept constant, the central bank says that inflation is going within the trajectory set by the RBI.

The new monetary policy revision that came in the budget month has kept the key policy rate – repo and other rates constant.

According to the central bank, two positive factors – good monsoon and low crude prices may help the country to achieve a relatively low inflation rate of 5% during the next year. At the same time, the impact of the implementation of the VII Pay Commission report my put some upward pressure on prices.

Observing that the households’ inflation expectation has increased, the monetary policy says that inflation is now active in service items rather than on food items.

‘A breakdown into goods and services categories shows that while goods inflation declined, services inflation has been sticky since September 2015 across housing, transport and communication, medical and other services.’

On growth front, the central bank points out investment revival measures to be initiated to achieve higher growth. ‘Underlying growth drivers need to be rekindled to place the economy durably on a higher growth trajectory.’

RBI puts the significance of private spending and fiscal consolidation in reviving the growth momentum. For the central bank the current growth momentum of growth is ‘reasonable, though below what should be expected over the medium term.’

“Yet, still weak domestic private investment demand in a phase of balance sheet adjustments, re-emergence of concerns relating to stalled projects, excess capacity in industry, sluggish external demand conditions dampening export growth could act as headwinds.”