THE HINDU Editorial Vocabulary - October 1, 2018 - Tricky call ahead: on RBI policy stance
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 path and having, just last week, raised interest rates by 25
basis points, the RBI would normally be expected to increase benchmark
borrowing costs in India in a bid to prevent heightened outflows of rate
arbitrage seeking foreign portfolio capital. Additionally, the rupee’s
depreciation of more than 12% against the dollar in 2018, combined 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 inflation-targeting mandate, the
MPC would be well justified in keeping its sights firmly trained on the retail
inflation trend and household expectations for future price gains. Also, while
headline CPI inflation eased appreciably 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 this core element that Deputy
Governor Viral Acharya cited in his statement at the MPC’s August meeting when he
said: “Underlying inflation as reflected in ‘ex food fuel’ segment, especially
in petrol and diesel, transportation (including fares), education fees, health
services and clothing persists, 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 concerns 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 action”. Four days later, on
September 27, it announced a relaxation in the Liquidity Coverage Ratio for banks
in a move to soothe 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 and cost of short-term credit from any unforeseen
financial market volatility. 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 repo rate of 6.5%. It is this concern
about the financial markets that will make the MPC’s task just a little
trickier.
Vocabulary
Stance: the
way in which someone stands, especially when deliberately adopted as in
baseball, golf, and other sports
Example: She
altered her stance, resting all her weight on one leg
Synonyms: posture, body
position, pose, attitude
Prevent: keep
something from happening or arising.
Example: Action
must be taken to prevent further accidents
Synonyms: stop, put
a stop to, avert, nip in the bud, fend off, stave
off, ward off
Depreciation: a
reduction in the value of an asset with the passage of time, due in particular
to wear and tear.
Example: The
former is intended to compensate the host railway for depreciation of the fixed
assets associated with use by other railways.
Synonyms: devaluation, devaluing, decrease
in value, reduction in value
Upward: moving,
pointing, or leading to a higher place, point, or level.
Example: An
upward trend in sales
Synonyms: rising, on
the rise, ascending, climbing, mounting, uphill
Unequivocal: leaving
no doubt; unambiguous.
Example: An
unequivocal answer
Synonyms: unambiguous, unmistakable, indisputable, incontrovertible, indubitable
Exclude: deny
someone access to or bar someone from a place, group, or privilege.
Example: Women
had been excluded from many scientific societies
Synonyms: keep
out, deny access to, shut out, debar, disbar, bar
Precisely: without
vagueness.
Example: The
guidelines are precisely defined
Synonyms: accurately, exactly, clearly, distinctly, strictly
Adequacy: the
state or quality of being adequate.
Example: The
adequacy of testing procedures
Synonyms: satisfactoriness, acceptability, acceptableness, sufficiency
