THE HINDU Editorial Vocabulary - April 6, 2018 - Topic 1

Surprise softening: on RBI's inflation projections

The Reserve Bank of India’s policymakers have acted predictably in opting to keep interest rates unchanged and in retaining the ‘neutral’ stance. Price stability, after all, remains the Monetary Policy Committee’s primary remit, and trend line retail inflation continues to run above its medium-term target of a durable headline inflation reading of 4%. 

But as with all central bank policy statements, it is not only the action but also what is said that is closely scrutinised for clues on what may lie ahead. The RBI’s bimonthly monetary policy statement, unfortunately, ends up sending mixed messages as its outlook for inflation and assessment of the factors contributing to price gains are at variance. The MPC has appreciably lowered its projections for CPI (consumer price index) inflation for the fourth quarter of 2017-18, and for the new fiscal year. It sees price gains having slowed to 4.5% over January-March — a full 60 basis points lower than the 5.1% pace it had projected in February. Forecasts for the first and second halfs of 2018-19 have also been substantially trimmed. Price gains in the first half are now in the 4.7-5.1% range (as against 5.1-5.6% projected in February), with inflation slowing in the second half to 4.4%.

The key factors cited by the RBI in lowering its inflation projections are a “sharp decline in vegetable prices and significant moderation in fuel group inflation.” In extending the moderation in food prices in February-March as a major driver of the lowered trajectory for price gains in the new financial year, the RBI is not fully convincing on account of an assertion (of a “likely reversal in food prices in H1”) and an assumption (of a “normal monsoon”). Despite a private weather forecaster’s projection of normal rains from June to September, the MPC itself acknowledges the risks that temporally or spatially deficient monsoon rainfall could pose to food prices. Also, policymakers appear to have glossed over the RBI’s March survey of households’ inflation expectations — where prices are seen edging up over the three-month and one-year-ahead horizons — as well as feedback that manufacturers expect input and output prices to rise. Volatility in oil prices too have been played down. The other surprise is the decision to jettison Gross Value Added as the main measure of economic output and switch to Gross Domestic Product. While the assertion that GDP growth will strengthen this fiscal has given investors cause for cheer, the forecast of 7.4% is unchanged from the implicit projection from February. The messaging on the economy could have been clearer and more consistent.

Vocabulary

Predictable: able to be predicted.

Example: The market is volatile and never predictable

Synonyms: foreseeable, (only) to be expected, anticipated, foreseen

Stability: the state of being stable.

Example: There are fears for the political stability of the area

Synonyms: firmness, solidity, steadiness, strength, security, safety

Trend: a general direction in which something is developing or changing.

Example: An upward trend in sales and profit margins

Synonyms: tendency, movement, drift, swing, shift, course, current

Scrutinise: examine or inspect closely and thoroughly.

Example: Customers were warned to scrutinize the small print

Synonyms: examine, inspect, survey, study, look at, peruse, investigate

Unfortunate: having or marked by bad fortune; unlucky.

Example: The unfortunate Cunningham was fired

Synonyms: unlucky, hapless, jinxed, out of luck, luckless, wretched

Assessment: the evaluation or estimation of the nature, quality, or ability of someone or something.

Example: The assessment of educational needs

Synonyms: evaluation, judgment, rating, estimation, appraisal, analysis

Substantial: concerning the essentials of something.

Example: There was substantial agreement on changing policies

Synonyms: fundamental, essential, basic

Forecast: predict or estimate a future event or trend.

Example: Rain is forecast for eastern Ohio

Synonyms: predict, prophesy, prognosticate, foretell, foresee

Trajectory: the path followed by a projectile flying or an object moving under the action of given forces.

Example: The missile's trajectory was preset

Synonyms: course, path, route, track, line, orbit

Spatial: relating to space.

Example: The spatial distribution of population

Deficient: not having enough of a specified quality or ingredient.

Example: This diet is deficient in vitamin B

Expectation: a strong belief that something will happen or be the case in the future.

Example: Reality had not lived up to expectations

Synonyms: supposition, assumption, presumption, conjecture, surmise

Assertion: a confident and forceful statement of fact or belief.

Example: His assertion that his father had deserted the family

Synonyms: declaration, contention, statement, claim, opinion, proclamation

Consistent: unchanging in achievement or effect over a period of time.

Example: Manufacturing processes require a consistent approach

Synonyms: constant, regular, uniform, steady, stable, even, unchanging