RBI uses central bank language in its monetary policy communication. The RBI communicates its policy to bankers, economists, analysts, bond traders and fund managers and hence it does not require to bring down communication to the level of a non financial person. We will attempt to demystify RBI policy language for you to understand clearly what RBI says and what it means.
Inflation has peaked: Prices will not rise as fast as it did last year.
Inflation will stay sticky at current levels: Prices will rise at the levels at which it is rising now, which is still uncomfortably high.
Overall economic activity remains subdued: Jobs are not increasing as investments are held back.
Liquidity conditions have remained tight: Banks are still borrowing from us on a daily basis despite us adding Rs 245,000 crores into the system in this fiscal
Liquidity is in structural deficit: Banks do not have money but the parallel system money is growing as cash in circulation is increasing and not coming back into the system.
Policy stance will support growth: Rate cuts will help improve economic activity but when is a big question mark.
Policy stance will anchor inflation expectations: Inflation will be kept on leash but the hold on the leash is weak.
Ensure adequate liquidity for credit growth: We want banks to lend to productive sectors but the fact is the productive sectors do not want the money, only the unproductive one require money such as debt laden real estate firms.
Monetary policy has space to address growth risks: We will cut rates to push economic growth.
Space to address growth risks is limited: Rate cuts will be too insignificant to help growth
Growth-inflation dynamics: Growth is falling and inflation is rising because of twin deficits.
Twin deficits risks are high: India runs a fiscal and current account deficit and the government is doing nothing about it
Outcome of rate cuts: Growth will improve, inflation will come down and liquidity will ease. We fervently hope that this happens but we know it is too much to ask for in one single rate action.
Risks to the policy stance: Indian economy and the world economy is a mess and it can worsen further leading to downside risk to growth and upside risk to inflation. Hopefully it will not happen in the near future.