Focus on price stability

Reserve Bank of India Governor Raghuram Rajan provided no surprises in his final monetary policy announcement as he kept the central bank’s unwavering focus on inflation by leaving interest rates unchanged for the second successive time this fiscal. Mr. Rajan, set to leave office at the end of his three-year term on September 4, had his task cut out after the Centre last week notified the Statutory and Institutionalised Framework for Monetary Policy, under which the maintenance of price stability has been unequivocally laid down as the primary remit of monetary policy. The Consumer Price Index-based inflation reading edged up in June to 5.77 per cent, well above the RBI’s March 2017 target of 5 per cent and nearing the 6 per cent upper bound set by the government’s monetary framework, largely on account of food prices. Mr. Rajan may have taken this into consideration in taking this decision. While acknowledging that the outlook for the global economy and international trade remain clouded and sluggish, the RBI has posited that the risks to India achieving 7.6 per cent Gross Value Added economic growth in the current financial year remain evenly balanced as of now. With clear signs emerging of “green shoots in manufacturing”, including those of a pick-up in new domestic and overseas orders, renewed business confidence, and an increasingly broad-based improvement in services activity, the central bank has opted for an accommodative stance that allows it elbow room to take more growth-supportive steps if the environment warrants.

The rationale proffered for sitting pat on rates is the sharper-than-anticipated increase in food costs, particularly the rising prices of pulses and cereals; at the same time, services inflation has remained somewhat sticky. And of course there is a lot riding on the outcome of the monsoon: the steady progress of the rains so far has translated into a strong improvement in sowing, with its potential for a salutary impact on food inflation. The full impact that the implementation of the Seventh Pay Commission’s recommendations will have on house rents and, as a result, the CPI, could have influenced the RBI’s price stability calculus. It is these risks to the inflation target that prompted Mr. Rajan to stay the course, even as the RBI continues to ensure that liquidity remains adequate. Expressing broad confidence in the RBI’s ability to stay on the “glide path” to achieving 5 per cent inflation by March 2017, Mr. Rajan has flagged the fact that his successor will, in all likelihood, have the advantage of being joined by five other members of the Monetary Policy Committee when they meet to decide interest rates in October. It will no longer be lonely at the top at the RBI.

Difficult words with definitions:

	Difficult word/phrase	Easier replacement
1	provided	gave/given
2	monetary	money-based
3	unwavering	steady
4	successive	(one after the other)
5	fiscal	money-related
6	task	job
7	notified	told
8	statutory	law-related
9	framework	(solid basic structure on which bigger things can be built)
10	stability	(firm and steady nature/lasting nature/strength)
11	unequivocally	definitely
12	primary	first (or most important)
13	consumer	person (who uses a product or service)
14	largely	mostly
15	into consideration	into the process of carefully thinking about something
16	acknowledging that the	admitting that the
17	global economy	(world-wide process of people making, selling, and buying things)
18	sluggish	slow
19	posited	suggested/said
20	achieving	(accomplishing or gaining with effort)
21	economic	money-based
22	financial	(related to managing money)
23	emerging	newly appearing
24	and overseas	and across-the-ocean
25	increasingly	more and more
26	has opted	has chosen
27	accommodative	(helpful and flexible/willing to adjust)
28	stance	(way of standing/way of thinking)
29	elbow room	room to move
30	the environment	(the health of the Earth/the surrounding conditions)
31	rationale	reasons (for doing something)
32	proffered	gave/given
33	anticipated	expected/looked ahead to
34	particularly	especially
35	of course	(definitely/as one would expect)
36	outcome	result
37	monsoon	bad rainstorm
38	sowing	causing/producing
39	potential for	(possibility of/possible happening of)
40	salutary	healthful
41	impact	hit/effect
42	implementation of	(putting into) use of
43	calculus	(branch of math/method of planning)
44	prompted	caused/brought about/reminded
45	to ensure that	to make sure that
46	adequate	(good) enough
47	successor	(person or thing that comes after something else)
48	in all likelihood	almost certainly

[Editorial from the hindu]