A 1-minute snapshot of RBI's credit policy statement

Moneycontrol Bureau

The Reserve Bank of India on Tuesday reduced repo rate by 25 basis points and kept the cash reserve ratio ratio unchanged.

Following are the key takeaways from the central bank’s credit policy statement.

* Macroeconomic conditions in most emerging markets remain challenging due to domestic fragilities, exacerbated by bouts of financial market turbulence.

* Global financial markets have also been volatile due to changing perceptions of monetary policies in the advanced economies.

* Domestic economic activity remains moderate in Q1 of 2015-16.

* An estimated 94 lakh hectares of area sown under the rabi crop was adversely affected by unseasonal rains and hailstorms in March.

* Outlook for Kharif season clouded by India Meteorological Department’s forecast of below average monsoon, and by the confirmation of onset of El Nino by the Australian weather department.

* Damage to crops like pulses and oilseeds – where buffer foodstocks are not available in the central pool – pose an upside risk to food inflation.

* Government’s contingency plans for food management crucial to limit impact of low production on inflation. Also, increase in agricultural support prices need to be limited.

* Industrial production recovering, albeit unevenly. Sustained weakness in consumption spending, especially in rural areas, continues to be a drag. Corporate sales have contracted.

* Upturn in capital goods production underway; unclogging of stalled investment projects, fresh capex by private firms key to the trend sustaining.

* Sustained revival of coal output augurs well for electricity generation and mining. There is some optimism on gas pricing and availability.

* Power purchase processes need to be expedited and power distribution companies’ financial stress addressed on a priority basis

* Some public sector banks will need more capital to clean up their balance sheets and support lending as investment revives.

* Leading indicators of services sector activity emitting mixed signals.Slowdown in tourist arrivals, railway traffic and international air passenger and freight traffic could affect hotels, restaurants and transport firms.

* Vegetables inflation continues to ease, along with that in cereals, oil, sugar and spices. Prices of protein items, especially milk and pulses, continue to rise.

* Rural wage growth, although still moderate, picked up. Inflation expectations remain in high single digits.

* Current account deficit is expected to be contained to about 1.5 per cent of GDP this year

* Net exports unlikely to contribute as much to growth going forward as they did in the past financial year. Therefore, growth to depend more on a strengthening of domestic demand.

* Foreign exchange reserves of around US$ 350 billion, provide a strong second line of defence to good macroeconomic policies if external markets turn significantly volatile.

* Assuming reasonable food management, inflation expected to be pulled down by base effects till August but to start rising thereafter to about 6.0 per cent by January 2016.

* Weak monsoon, rising crude, volatility in global environment, pose upside risks to inflation