MANU/RPRL/0168/2016

Ministry : Reserve Bank of India

Department/Board : RBI

Press Release No. : 2015-2016/3026

Date : 28.06.2016

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

Consultation with external Members of the Technical Advisory Committee (TAC) on Monetary Policy was held electronically during May 24-30, 2016 in the run up to the Second Bi-monthly Monetary Policy Review, 2016-17 on June 7, 2016. The main points made by Members are summarised below.

1. Members noted that the global economic recovery is struggling to gain momentum. While strong decelerating forces persist in inhibiting growth in key emerging market economies (EMEs), growth in some key advanced economies (AEs) has moderated, clouding global economic prospects in the near term. Deflation fears remain on account of subdued global trade, weak growth prospects in EMEs and still low commodity prices. Monetary policy stances are set to diverge further in AEs, which could unsettle financial markets. The recent rise in international crude oil prices poses inflation risks to oil importing countries.

2. On domestic economic growth, the sustained weakness of industrial production continues to be a source of concern, and a drag on overall activity. Low capacity utilization numbers suggest that some sectors of the economy are operating below potential. There are also clear and continuing signs of a demand shortfall facing industry, which also continues to battle low global demand. Corporate sector activity may be improving as reflected in the Reserve Bank's recent release of corporate results, with double digit growth in earnings before interest, depreciation, tax and amortisation (EBIDTA). Since the wholesale price index has moved up, there is likely to be some deceleration in the growth of value added in the industrial sector, although not of the magnitude reflected in the index of industrial production (IIP). Real growth in the services sector may continue to be robust despite a higher deflator, because of the increase in some nominal indicators, such as financial sector activity. Agriculture growth may surprise positively if the monsoon is good. In sum, while the economy has revived somewhat, and is likely to see a cyclical recovery if a good monsoon sets in, the latest IIP numbers have added to pressure that more needs to be done to put the economy on a trajectory of higher growth.

3. Most of the Members expressed concern on the inflation outlook since food inflation rose by 100 basis points, headline inflation moved up by 60 basis points, and even excluding food, fuel, petrol and diesel, inflation edged up marginally and remained sticky in April. There are also upside risks to inflation associated with a rebound in crude prices. Further upside risks to inflation could arise from the imp........