First Bi – monthly monetary policy (FBMR) – Preview

1st April 2014, April Fool’S Day, would be Raghuram Rajan’s first policy in the changed format whereby monetary policy reveiw would happen every alternate month, 6 reviews in a year would take place as against the earlier 8 (4 main quarterly reivews and 4 mid – quarter reviews).

Strange that Rajan chooses to have policy at the beginning of the quarter rather than the earlier established practice of having it at the end of the quarter, whereby quarterly corporate results would have been announced, giving insights into the health of corporate balance sheets, giving indications about the pricing power of corporates.

Although he might not state it categorically, the Urijit Patel committee reccomendations (without soliciting any public feedback & debate) have been accepted, whereby the CPI would be the ‘nominal anchor’ of the monetary policy.  A glide path of 8% on the CPI by Jan ‘2014 and 6% by Jan 2015 has been set as targets. 

In his TQR Monetary Policy held in January 2014, Rajan had hiked REPO rate by 25 bps to 8% against expectations. Policy doc said that, While retail inflation measured by the consumer price index (CPI) declined significantly on account of the anticipated disinflation in vegetable and fruit prices, it remains elevated at close to double digits. Moreover, inflation excluding food and  fuel has also been high, especially in respect of services, indicative of wage pressures and other second round effects. The extent and direction of further policy steps will be data  dependent, though if the disinflationary process evolves according to this baseline  projection, further policy tightening in the near term is not anticipated at this juncture.

Rajan seems to be in the habit of bowling the “doosra” ala Saqlain. Notwithstanding that, with both, the headline CPI & WPI coming off, along with moderation in core inflation and more importantly stability of the currency, he would pause. 


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