“Uncertainties about energy prices have risen considerably. Indian crude oil basket is up nearly 25% in the previous two months. The current geopolitical stress in Europe is a significant risk and if it translates into spiking oil and gas prices, we will need to adjust macro-economic policies suitably,” RBI deputy governor Mridul Saggar said, according to the minutes of the MPC meeting.
According to Saggar, the higher level of foreign exchange reserves meant that India has turned less sensitive to global factors. “However, it will be important to maintain credibility by aiming to keep inflation on a sustained basis at or near the target as soon as real economy conditions normalize,” he said.
What makes the central bank more confident about managing the situation is the debt coverage ratio. The RBI’s forex reserves stood at $630 billion as of February 11, of which foreign currency assets were $566 billion.
“India’s total external debt is more than covered by the stock of international reserves. India’s international as- sets cover three-fourths of all international liabilities. Thus, the external sector, which will bear the brunt of shocks from abroad, remains robust and resilient enough to withstand the tidal waves of global spillovers,” RBI deputy governor Michael Patra said.
The minutes reveal that the central bank was of the view that growth momentum was hit during the third quarter, which prompted it to retain the accommodative stance. “Inflation pressures in India continue to emanate largely from supply-side factors, and the recent print also reflects adverse base effects,” governor Shaktikanta Das noted, according to the minutes.
External member Shashanka Bhide too had expressed concerns arising out of the geopolitical situation.
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