RBI Credit Policy: Key takeaways: Inflation risks up, recovery on but likely uneven

Moneycontrol BureauThe Reserve Bank of India on Tuesday kept benchmark policy rates unchanged, warned of upside risks to its inflation target, even as it said that the overall picture was gradually improving, albeit unevenly.Following are the key takeaways from the credit policy:* Global growth uneven and struggling to gain traction. World trade remains muted because of weak demand.* Recent uptick in commodity prices providing some relief to commodity exporters but political events could unsettle investor sentiment and affect capital flows. * Good monsoon critical for the outlook for agriculture since reservoir levels have been depleted to 17 per cent of capacity--40 per cent lower than the level a year ago.* Rabi procurement lower in April-May 2016 than a year ago, but mid-May food stocks at 58 million tonnes almost three times the norm for Q1.* Signs of corporate performance improving. RBI’s forward looking surveys indicate improvement in the overall business situation, driven by a pick-up in capacity utilisation and in order books.* Public investment, especially in roads and railways, is gaining strength,though weakness in private investment remains. * Demand conditions likely to improve going forward; consumer confidence seen rising on improving expectations of employment and spending, with rural demand aided by a stronger monsoon. * Recovery still uneven. Cargo traffic at major ports, automobile salescommercial vehicle sales, passenger air and freight traffic, cement production and steel consumption rising. * Railway freight traffic and passenger car sales have decelerated on sector-specific constraints.* Exports down for the seventeenth consecutive month in April in US dollarterms in spite of a modest increase in volume.* The inflation surprise in April makes the future trajectory of inflation somewhat more uncertain. Upside risks include rising commodity prices, implementation of 7th Central Pay Commission; upturn in inflation expectations of households, corporates; and stickiness in inflation excluding food and fuel.* Inflation projections given in the April policy statement retained, though with an upside bias.* FY17 GDP growth target of 7.6 percent retained. Domestic conditions for growth are improving gradually. Yet, business confidence will be restrained to an extent on account of unrelenting global factors. *The stance of monetary policy remains accommodative. More monetary transmission to support the revival of growth continues to be critical. * Timely capital infusions into constrained public sector banks will also aid credit flow