MANU/RPRL/0064/2016

Ministry : Reserve Bank of India

Department/Board : RBI

Press Release No. : 2015-2016/1984

Date : 22.02.2016

Summary of the Electronic Consultation with the Technical Advisory Committee on Monetary Policy: January 2016

Consultation with external Members of the Technical Advisory Committee (TAC) on Monetary Policy was held electronically during January 19-22, 2016 in the run up to the Sixth Bi-monthly Monetary Policy Review, 2015-16 on February 2, 2016. The main points made by Members are set out below.

1. Members expressed concern on global developments. Overall growth in the US in 2016 will slow towards trend, with underlying US domestic economy looking solid. Macroeconomic conditions in Europe are not good - unemployment is elevated, growth is close to 1.5 per cent, and structural reforms in labour and product markets are not happening. Quantitative easing in Europe will not have the same effects as in the US since US equity ownership is more widespread. The essential challenge in Europe is that diverse economies are forced to live with a single exchange rate and single monetary policy. Among emerging market economies (EMEs), the pace of growth in China was the lowest last year since 1990. China has to deal with large debt and excess capacity in several industries such as steel.

2. On domestic growth, Members were of the view that the economy has stabilised, and appears to be on a path of a modest recovery. While the November IIP collapse suggests a slowing down of economic activity (partly also due to festival induced fewer working days), a smoothed average over October-November suggests a slow but gradual revival in economic activity. However, the pace of recovery is constrained by problems in both the banking and infrastructure sectors. This has led to weak private investment. Consumption, somewhat tepid, however, is contributing to demand, although contribution from durables and non-durables is mixed. There are risks in the revival of growth. First, weak data from the corporate sector are getting worse with bad debt concentrated among large corporates (especially in steel and power). Second, stressed corporate balance sheets are pushing capex down, suggesting that private investment is likely to be flat in the short term. Third, even though public investment in 2015-16 increased to compensate private investment, the absorptive capacity of the economy may be limited. On the fiscal front, there has been a significant improvement in fiscal balances, alongside a shift from revenue to capital expenditures, with a general improvement in the aggregate fiscal position of the states.

3. While most Members felt that the 6 per cent inflation target for January 2016 will be comfortably met, a Member expressed concern on the recent increase in all measures of inflation. Headline CPI prints have g........