Reserve Bank of India (RBI) monetary policy
How are the Indian and global economic environments affecting the financial markets?
The new RBI governor Shaktikanta Das, given the low consumer price index (CPI) inflation reading – closer to the RBI’s lower end of the 2 – 6 percent range – in December 2018, has declared victory on achieving price stability and reoriented monetary policy to be pro-growth by changing the policy stance to “neutral” (as we expected 2 weeks ago) and at the same time also cut the repo rate by 25 basis points to 6.25 percent while staying committed to the 4 percent medium-term inflation target. It assured the markets that it would ensure adequate liquidity through open market operations as needed. The RBI is also open to transferring some reserves to the government as determined by the RBI’s central board. RBI policy has thus resolved the issues the central bank had with the government before Urjit Patel stepped down as governor. Low inflation and macroeconomic stability have helped the cause of both the new governor and the government. The financial markets responded accordingly by moving into positive territory.
What to expect from the markets next week?
Corporate earnings reports will continue to determine the path of the major Indian indices next week amid international concerns about slowing global growth and continuing trade tensions between the US and China. Even as growth is projected to be lower around the world, the United States – India’s principal export market – is holding steady and will remain so especially because the US Federal Reserve has signaled a “patient” approach to future rate increases given the tenuous global situation particularly in Europe and China. Indian financial markets will respond to economic developments around the world only insofar as they affect India’s exports.