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Two key aspects of RBI's commentary are: Hawkish inflationary outlook while extremely optimistic about growth in the coming FY; and serious intent to solve the NPA problem of the banks. While sticking to the medium term target of CPI to 4% within a band of +/-2% it flagged multiple risks to inflation. These include the probability of recurrence of El Niño and it's impact on food inflation, 7th pay commission receipts, one-off GST effect and even the farm loan waiver in several states.
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The rupee rise in the last quarter caught almost all the analysts off-guard, revising the forecasts for the quarter and year. RBI's gauge of the currency's strength puts in the overvalued territory. And it's non-intervention though perplexing is a wise move as any aggressive buying of dollars would only add to the excess liquidity it's trying to suck out through reverse repo rate hike. We see the trend to continue in the medium term.
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The US has thrown a wrench in to the ongoing Syrian repair, unsure of which nuts and bolts it wants to tighten or loosen. So, this sudden US reaction to an alleged chemical attack by the Assad admin to be considered genuine or a POTUS ploy to reverse the ever falling approval ratings is unclear.
Musings also indicate the sustenance of new tax cuts and hiked spend proposals need more political mileage especially post the failure to replace 'Obamacare'. But this misadventure could add chaos to the Middle East.
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