MANU/RPRL/0100/2015

Ministry : Reserve Bank of India

Department/Board : RBI

Press Release No. : 2015-2016/491

Date : 25.08.2015

Summary of the Electronic Consultation with the Technical Advisory Committee on Monetary Policy: July 2015.

Consultation with external Members of the Technical Advisory Committee (TAC) on Monetary Policy was held electronically between July 22 and 28, 2015 in the run up to the Third Bi-monthly Monetary Policy Review, 2015-16 on August 4, 2015. The main points suggested by Members are set out below.

1. Members' assessment of the global economic activity was that though the overall level of activity was low, the US Fed sees policy risks shifting. Recent data point to moderate growth in the June quarter in the US following a weak growth in March quarter. While there have also been some increase in wage growth, core measures of inflation remained below the US Fed's inflation target. There are clear indications that initiation of normalisation of the policy stance would be sooner and gradual, rather than later and more rapid, suggesting a Fed fund rate hike in September or December. On Greece, while the prospects of a Greek exit from the Euro have diminished for now, it cannot be ruled out in the future.

2. On the domestic front, Members noted that the real economy continues to be weak. With the IIP growth as subdued, the departure of the May slowdown (2.7 per cent) from the consensus estimates of 4 per cent is worrying. Comparatively speaking, the source of concern is on the consumer goods side, which continues to be weak with both consumer durable and consumer non-durable output contracting in May. The input sectors (mining and electricity) may continue to drive the expansion of the IIP, but whether these are a source of sustained growth will depend on how the policy framework evolves. The purchasing managers' index for both manufacturing and services has declined in June 2015 and new investment initiatives have not gathered steam, which is worrying. Exports dipping seven months in a row is also a major concern for growth, especially since a possible secular stagnation may constrain an export led revival.

3. Regarding inflation, some Members were of the view that with the revival of monsoon in late July and reduction in rainfall deficit to 5 per cent, food prices may remain soft, keeping prospects of a sustained uptick in CPI inflation low. The current rise in food prices may be an aberration because of difficulties in transportation during heavy rains, although the rise in prices of pulses from 16 per cent in May to 22 per cent in June is significant. The Iran agreement will help keep oil prices soft. Food inflation is presently ruling well below 6 per cent. Core inflation, even after a steady climb since January 2015, is still ruling at 4.98 per cent. Other Members were not so comforta........