By Mr. Sampath Reddy

RBI’s Monetary Policy Committee (MPC) kept the key policy rates unchanged, with all six members of the MPC unanimously voting in favor of the monetary policy decision citing upside risks to the CPI inflation target of 5% for March 2017 and external factors like future stance of US monetary and fiscal policy.

RBI’s growth projection has been revised downward for FY17 to 7.1% from 7.6%, on account of short run disruptions in economic activity due to cash crunch and slump in demand due to adverse wealth effects due to demonetization.

Currency in circulation reduced by ~ Rs 8 trillion from Rs 17.77 trillion in October, 2016 to ~Rs 9.2 trillion on December 23, 2016 on account of government’s demonetization move and restrictions in cash deposits and withdrawals in banks.

US Fed in its December FOMC meeting decided to hike Fed rate by 0.25% to 0.50%-0.75% – citing strong labor market data and steady increase in inflation towards US Fed’s 2% target. Moreover, it has indicated 3 hikes in CY 2017 in its guidance.

Fiscal deficit for April – November 2016 was 4.58 lakh crore viz. 85.8% of 5.34 lakh crore of the budgeted fiscal deficit for FY17 (against 87.0% during the same period last year).

November CPI inflation moderated to 3.63% YoY as against 4.20% in October; primarily on account of moderation in food inflation to 2.11% YoY in November as against 3.32% in October.

IIP contracted by 1.9% in October as against growth by 0.7% in September, primarily on account of contraction in manufacturing sector (-2.4%).

Brent crude rose by 12.6% in December to close at USD56.82/barrel; versus USD50.47/barrel in November.

INR appreciated by 0.68% in December to close at INR67.92/USD; versus INR68.39/USD in November.

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