MUMBAI: Reserve Bank remains laser-focused on bringing retail inflation back to 4 per cent in a non-disruptive manner, Governor Shaktikanta Das According to the minutes of the October policy meeting released on Friday, interest rates insisted while voting for the status quo.
The central bank has been mandated by the government to ensure consumer price index (CPI) based inflation at 4 per cent, with a band of 2 per cent on either side.
Retail inflation, which was above 6 per cent in May and June, has started declining and has come down to 4.35 per cent in September.
according to the minutes monetary policy committee (MPC) meeting held during October 6 to 8, Das said in its meeting of August 2021, the panel faced challenges exceeding the upper tolerance limit of headline inflation for the second consecutive month.
Real inflation results for July-August, with inflation registering enough moderation to move within the tolerance band, have justified the MPC’s outlook and monetary policy stance, he said.
The softer-than-expected inflation in July and August this year was on account of a significant moderation in the pace of food prices, especially in August.
Going ahead, the Governor said that if there is no unseasonal rains, food inflation is likely to record a significant reduction in the immediate period, aided by record kharif production, more than adequate food stocks, supply-side measures and favorable base effects. it occurs.
Volatile crude oil prices, particularly the resurgence since mid-September, are pushing pump prices to new highs, increasing the risk of further spillover of higher transportation costs into retail prices of goods and services. They said.
He said that continued monetary support is necessary as the process of economic recovery is still delicately lined up and growth is yet to strengthen.
At this critical juncture, “our actions must be gradual, calibrated, well timed and well telegraphed” to avoid any undue surprise, he emphasized.
Voting to keep the policy rate unchanged and continue with the accommodative stance, Das said, “In parallel, we are laser-focused to bring CPI inflation back to 4 per cent over a period of time in a non-disruptive manner.”
All MPC members – Shashank Bhide, Ashima Goyal, Jayant R Verma, Mridul K Sagar, Michael Debabrata Patra and Shaktikanta Das – unanimously voted to keep the policy repo rate unchanged at 4 per cent. Also, except Verma, all the members voted to continue with the liberal stance.
Deputy Governor Patra said the inflation trajectory may lower the projections made in August, but it is uneven, sluggish and prone to disruptions.
He also said that even as the domestic macroeconomic configuration is improving, risks from global developments are rising and need to be closely monitored as they may stall the ongoing recovery in India.
Exports are directly at risk from logistics constraints, a shortage of containers and personnel in international shipping, and high freight rates. He said there is an urgent need for policy interventions, including coordinated multilateral efforts, to prevent global trade from stalling.
“In my view, the biggest risks to India’s macroeconomic prospects are global and they can emerge suddenly,” he said.
RBI executive director Sagar stressed that there is a need to keep “Arjun’s eye” on commodity prices and “we need to consider various scenarios according to which we can calibrate our policies.”
He said that in his assessment, whether oil prices could touch or exceed $85 a barrel before the end of the year and average $80 or more in the second half is not insignificant.
“This could have significant implications that are difficult to determine precisely due to non-linearity and uncertainties, but at a ballpark from baseline, inflation can be expected to increase by 15–20 bps, up by 13–15 bps.” Low growth, negligible. The impact on fiscal subsidies and widening CAD to about 0.25 per cent of GDP,” he said.
Verma, an external member of the panel, said the arguments he made in the MPC meeting in August were still valid.
“Since August, I have become concerned about two other risks that have become prominent globally in recent weeks,” he said.
The first is that the worldwide transition to green energy poses a significant risk of creating a series of energy price shocks similar to those in the 1970s. The second recent concern is about the risks to global growth posed by emerging financial sector fragility in China, he said.
“Both of these risks – one to inflation and the other to growth – are well beyond the control of the MPC, but they guarantee an increased degree of flexibility and agility.
Verma, who voted against the liberal stance, said, “A pattern of slow policy making guided by an excessive desire to avoid surprise is no longer appropriate.”
Ashima Goyal, external member on the MPC, said global price shocks have become more persistent, contributing to sticky core inflation and a tax cut on petroleum products is “necessary” to break the upward movement that has been consolidating domestic inflation. can.
It also said that there is huge uncertainty in the current prices because of the speculative element which is looking to profit from the increasing shortage.
“Big sudden drops are possible,” she said, and additional oil prices have shown high volatility.
She further said that “climate change activism” which is partly responsible for the current spikes, will also reduce oil demand in the future.
MPC’s third external member, Shashank Bhide, said investment activity has picked up from 2020-21 levels but is yet to reach 2019-20 levels.
Accelerated progress in vaccination and several economic policy initiatives to open up investment opportunities are among the factors driving new investments positively.
The MPC consists of three RBI officials and the government appoints three eminent economists to the panel as external members.
The central bank has been mandated by the government to ensure consumer price index (CPI) based inflation at 4 per cent, with a band of 2 per cent on either side.
Retail inflation, which was above 6 per cent in May and June, has started declining and has come down to 4.35 per cent in September.
according to the minutes monetary policy committee (MPC) meeting held during October 6 to 8, Das said in its meeting of August 2021, the panel faced challenges exceeding the upper tolerance limit of headline inflation for the second consecutive month.
Real inflation results for July-August, with inflation registering enough moderation to move within the tolerance band, have justified the MPC’s outlook and monetary policy stance, he said.
The softer-than-expected inflation in July and August this year was on account of a significant moderation in the pace of food prices, especially in August.
Going ahead, the Governor said that if there is no unseasonal rains, food inflation is likely to record a significant reduction in the immediate period, aided by record kharif production, more than adequate food stocks, supply-side measures and favorable base effects. it occurs.
Volatile crude oil prices, particularly the resurgence since mid-September, are pushing pump prices to new highs, increasing the risk of further spillover of higher transportation costs into retail prices of goods and services. They said.
He said that continued monetary support is necessary as the process of economic recovery is still delicately lined up and growth is yet to strengthen.
At this critical juncture, “our actions must be gradual, calibrated, well timed and well telegraphed” to avoid any undue surprise, he emphasized.
Voting to keep the policy rate unchanged and continue with the accommodative stance, Das said, “In parallel, we are laser-focused to bring CPI inflation back to 4 per cent over a period of time in a non-disruptive manner.”
All MPC members – Shashank Bhide, Ashima Goyal, Jayant R Verma, Mridul K Sagar, Michael Debabrata Patra and Shaktikanta Das – unanimously voted to keep the policy repo rate unchanged at 4 per cent. Also, except Verma, all the members voted to continue with the liberal stance.
Deputy Governor Patra said the inflation trajectory may lower the projections made in August, but it is uneven, sluggish and prone to disruptions.
He also said that even as the domestic macroeconomic configuration is improving, risks from global developments are rising and need to be closely monitored as they may stall the ongoing recovery in India.
Exports are directly at risk from logistics constraints, a shortage of containers and personnel in international shipping, and high freight rates. He said there is an urgent need for policy interventions, including coordinated multilateral efforts, to prevent global trade from stalling.
“In my view, the biggest risks to India’s macroeconomic prospects are global and they can emerge suddenly,” he said.
RBI executive director Sagar stressed that there is a need to keep “Arjun’s eye” on commodity prices and “we need to consider various scenarios according to which we can calibrate our policies.”
He said that in his assessment, whether oil prices could touch or exceed $85 a barrel before the end of the year and average $80 or more in the second half is not insignificant.
“This could have significant implications that are difficult to determine precisely due to non-linearity and uncertainties, but at a ballpark from baseline, inflation can be expected to increase by 15–20 bps, up by 13–15 bps.” Low growth, negligible. The impact on fiscal subsidies and widening CAD to about 0.25 per cent of GDP,” he said.
Verma, an external member of the panel, said the arguments he made in the MPC meeting in August were still valid.
“Since August, I have become concerned about two other risks that have become prominent globally in recent weeks,” he said.
The first is that the worldwide transition to green energy poses a significant risk of creating a series of energy price shocks similar to those in the 1970s. The second recent concern is about the risks to global growth posed by emerging financial sector fragility in China, he said.
“Both of these risks – one to inflation and the other to growth – are well beyond the control of the MPC, but they guarantee an increased degree of flexibility and agility.
Verma, who voted against the liberal stance, said, “A pattern of slow policy making guided by an excessive desire to avoid surprise is no longer appropriate.”
Ashima Goyal, external member on the MPC, said global price shocks have become more persistent, contributing to sticky core inflation and a tax cut on petroleum products is “necessary” to break the upward movement that has been consolidating domestic inflation. can.
It also said that there is huge uncertainty in the current prices because of the speculative element which is looking to profit from the increasing shortage.
“Big sudden drops are possible,” she said, and additional oil prices have shown high volatility.
She further said that “climate change activism” which is partly responsible for the current spikes, will also reduce oil demand in the future.
MPC’s third external member, Shashank Bhide, said investment activity has picked up from 2020-21 levels but is yet to reach 2019-20 levels.
Accelerated progress in vaccination and several economic policy initiatives to open up investment opportunities are among the factors driving new investments positively.
The MPC consists of three RBI officials and the government appoints three eminent economists to the panel as external members.
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