The Indian Economy Needs A Dovish Raghuram Rajan

NEW DELHI: The global economy is still very much in the zero interest rate policy era with the exception of the U.S. Federal Reserve which is widely expected to raise rates this year. 16 out 18 industrialized nations have seen their inflation reading run below expectations as deflationary forces continue to exert pressure on the global economy.

 After many years, inflation has cooled off to a level where India can aggressively begin an interest rate easing cycle to jumpstart the much talked about cyclical recovery.

Domestic growth sluggish; inflation set to undershoot RBI target  

Following the CPI print of 5.4 percent in February, the consensus view is that CPI will consistently undershoot RBI’s 6 percent target through 2015 and average 5 percent in FY16 according to Citibank.

While monsoon is a risk factor to these forecasts, the softer inflation readings should continue on account of lower commodity prices, moderate minimum support price hikes and a deceleration in rural wages. Growth figures are nowhere close to flattering given the equity valuations the markets are commanding.

 Industrial production continued to expand at a moderate pace of 2.6 percent year on year in January as compared to a revised growth of 3.2 percent last month. On a sectoral basis, mining and consumer goods output contracted by 2 percent and 1.9 percent respectively in January while electricity and manufacturing output rose by a meager 2.5 percent and 2.8 percent respectively.
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