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Monetary policy decisions need to be forward-looking: RBI governor

The Reserve Bank of India (RBI) governor Urjit Patel has said that the monetary policy decisions need to be forward-looking rather than looking at inflation rates of today or yesterday. On the monetary policy framework, he said that the Monetary Policy Committee (MPC), which decided to keep key repo rate unchanged for the third time at 6%, has explained its reasons for the decisions it takes as per the policy framework and the inflation targeting system that has been followed on account of legislative change. He added that the MPC decision took into account all the downside risks and mitigating factors.

Stating that it is difficult to forecast global oil prices trend in the coming years, the governor said that in recent days oil prices had shown two-way movement and there is a need to be prepared for both the scenarios of rising and falling rates. In addition, he observed that a few months ago, June or so, people were talking about oil prices never going above $45 per barrel and some of the advise had come to MPC was based on that. He pointed out that while the global oil prices have cooled a bit in last 2-3 days, there have been concerns about the potential headwinds from a rise in crude prices. Besides, he exuded confidence about improving credit growth and the encouraging trend of companies being able to raise a fair amount of funds from the capital markets.

Talking about the volatility in the equity markets, Patel said that there has already been a correction not only globally but in India and therefore in a way it underscores how capital markets can change direction. He noted that so far neither globally nor in India have they felt that this bubble could lead to a very major problem. However, he said that as financial market regulators both RBI and SEBI need to be cognizant of the risk going forward.

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