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

Dated:- 25-8-2015 - 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 i .....

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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 .....

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w 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 .....

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ve been allowed. High pulses inflation as well as of egg, meat and fish that may translate into inflation expectations may be kept in view while formulating the policy response. There was also an increase in core inflation driven in part by an increase in the service tax and higher petrol prices. Because a slowing down of rural wage growth should put downward pressure on various items of core inflation such as clothing and footwear, core inflation is likely to stay around the 5.5 per cent range .....

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fall in global demand may not be the only reason explaining the fall in exports. Since current account deficit is under control, oil prices have fallen further and commodity prices continue to be soft, some Members were of the view that downward adjustment of the nominal rupee exchange rate could encourage exports, without adding to inflation or upsetting foreign investors. 5. Four of the seven Members recommended a reduction in the policy repo rate. Three of them suggested a reduction of 25 ba .....

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o use the space that is available for a reduction in the policy repo rate. The fourth Member advocated a reduction in policy repo rate by 50 basis points as the real economy continues to be very weak, inflation risks are receding and both the fiscal and current account deficits are under control. 6. Three Members recommended a status quo in the policy repo rate. According to them, firstly, with deceleration in credit growth, there is surplus liquidity in the markets as witnessed by the fact that .....

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