Second Bi-monthly Monetary Policy Statement, 2017-18

Since the April 2017 meeting of the MPC, global economic activity has expanded at a modest pace, supported by firming growth in major advanced economies (AEs) and in some emerging market economies (EMEs) as well. In the US, a tightening labour market is generating wage gains. Alongside, industrial production has steadily improved in recent months and retail sales remain robust, although home sales ebbed in April. Political risks remain high, however. In the Euro area, the recovery has been underpinned by consistently falling unemployment, rising retail sales and a brighter outlook for manufacturing reflected in purchasing managers’ and business surveys. In Japan, exports supported by a depreciated yen and industrial activity are driving an acceleration in growth. Wages and inflation, however, are depressed and holding back domestic demand.

The pick-up in global merchandise trade volume since the start of the year has been sustained in Q2 of 2017, buoyed by strengthening global demand as reflected in rising international air freight and container throughput. Crude prices fell to a five-month low in early May on higher output from Canada and the US, and remain soft, undermining the OPEC’s recent efforts to tighten the market by trimming supply. Among non-fuel commodity prices, metal prices have been retreating on expectations of weak demand from China

1.The inflation has fallen below 4 per cent since November 2016. However, the impending implementation of GST ( from 1 July 2017) is not expected to have any inflationary impact
2.Retail inflation dropped to 2.99 per cent in April 2017 from 3.89 per cent in April 2016.
3.The fourth quarter GDP numbers dropped to a growth rate of 6.1 per cent as against 7 per cent in the previous quarter. Yet, overall GDP growth slowed to 6.5% in the second half as adverse effects of demonetization kicked in.
4.The headline inflation is projected in the range of 2.0-3.5 per cent in the first half of 2017-18 and 3.5-4.5 per cent in the second half

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