The monetary policy committee’s (MPC) decision to keep the policy rate unchanged in its today’s meeting was not a surprise. This is so as it had taken the risk to reduce rates in its last meeting and the, then stated, threat of rise in inflation has actually played out. The threat was first stated by MPC in Feb’17 when its policy stance changed from “accommodative” to “neutral”. CPI since then has moved from about -0.5% in Feb to over 3% in Aug, in line with its projections, and there is not much reason to believe its projections would go wrong for the rest of the year. Continue reading
Belying the expectations of a rate cut, the monetary policy committee (MPC) has not only decided to keep the rates unchanged in its meeting today but more importantly, has shifted its stance from “accommodative” to “neutral’. This is “to assess the transitory effects of demonetization on inflation and the output gap”. The shift marks a significant reversal of policy as it had maintained “accommodative’ stance all through the year. A look at the reason for the same..