The details of the meeting held in the first week of this month on the monetary policy issued by the Reserve Bank of India show that members believe that inflation is under control. At the same time, the committee believes that growth in the economy needs to be supported, which is still recovering from the low level, but it is in its initial stage. The MPC members were of the view that policy support needs to be maintained till the growth is sustained. At the same time, the members of the committee have also expressed concern about the risk of inflation rising. The committee says food prices are at a low level and may start picking up from the first quarter of FY22.
Reserve Bank Governor Shaktikanta Das said, “Although the growth is still uneven, recovery is taking place and it is gaining momentum.” At the same time the scenario is also improving with the vaccination campaign across the country. However, the pace of growth needs to be further strengthened, leading to a sustainable recovery in the economy and the output to reach the pre-Kovid position.
In the monetary policy meeting held between February 3 and 5, the Reserve Bank had decided to maintain the standard interest rates at 4 per cent without change, but maintain inclusive status. This suggests that if needed, rates could be cut in the future to support the economy affected by Kovid-19.
According to the minutes of the MPC released on Monday, Das said, “The sharp improvement in food inflation has improved the short-term headline inflation, although the pressure of headline inflation remains.”
MPC member Michael Patra said, “There is a risk of inflation rising.” First, the headline inflation remains stubborn and it needs to be closely monitored as it may adversely affect the recent reforms.
“The current macroeconomic situation and its possible future shows that there is a possibility for the MPC to continue to support the recovery in the economy as inflation remains within the target range,” said Ashima Goyal, an external member of the MPC.
Since June 2020, inflation has been breaking the upper limit, but in December it was reduced to 4.6 percent as food prices fell and the base effect was in favor. However, due to the rise in crude oil prices and higher indirect tax rates on petrol and diesel, major inflation has increased and prices of key goods and services are rising, especially in the transport and health category.
According to the governor, it is important to consider very proactive steps in the matter of supply, especially in the center and states, on the high indirect tax of petrol and diesel, so that the economy is not put further pressure. “Overall, the short-term scenario seems less risky to growth than short-term challenges, which need to continue policy support,” said Patra.
On the other hand, MPC external member Shashank Bhide said, “There is a need to maintain inclusive monetary policy to sustain the ongoing economic recovery and expansion in both production and demand”.