Minutes of the Monetary Policy Committee (MPC) released on Thursday showed Reserve Bank of India (RBI) Governor Shaktikanta Das expressing concern that recent rise in retail inflation is negatively impacting its resolve to revive growth amid the coronavirus pandemic. Das pointed towards the disruptions in the supply chain for surge in Consumer Price Index (CPI) based inflation in recent months. The minutes also show that the RBI Governor expects the inflation to remain elevated during July to September period due to rise in prices of food and core items.
The retail inflation measured by the Consumer Price Index (CPI) climbed 6.93 per cent in the month of July from 6.23 per cent in June. The retail inflation has grown beyond the RBI's upper margin of 6 per cent. The government has mandated the central bank to keep inflation within the range of 4 per cent with a margin of 2 per cent on either side.
On growth outlook, Das said that rural indicators can provide support to demand going forward, if sustained. Certain crucial sectors such as tourism, hospitality, entertainment will take some time to recover, he added. Das had recently said that the impact of the pandemic on the domestic economy turned out to be far more severe than initially anticipated.
Real GDP is expected to contract in the first half of the year and the growth for FY21 is estimated to be negative, the minutes also show him as saying during the meeting. Since consumer confidence is low, the external demand may also remain weak, he added.
Sharing views during the meeting, MPC member Pami Dua said, "It is important to revive the economy and mitigate the impact of the COVID-19 pandemic, in line with the objective of monetary policy - to maintain price stability while keeping in mind the objective of growth. It is thus prudent to continue with the accommodative stance of monetary policy. At the same time, the mandate of the MPC is to achieve the target of CPI inflation 10(combined) of 4 per cent with the upper tolerance limit of 6 per cent and the lower tolerance bound of 2 per cent."
"Since the last review, the economy has seen a gradual rebound in economic activity. This is largely mechanical, as much of the lockdown in the economy is being undone as policy constraints on the supply side are removed," Chetan Ghate said.
Ravindra H Dholakia, however, expressed reservations in accepting the implicit inflation numbers for April and May announced by the NSO. "I would, therefore, like to wait and watch for more reliable and realistic estimates of the headline inflation before taking any decision on the policy rate," Dholakia said.
The twenty-fourth meeting of the MPC was held from August 4 to 6. The meeting was attended by all the members Chetan Ghate, Pami Dua, Ravindra H. Dholakia, Mridul K Saggar, Michael Debabrata Patra, and Shaktikanta Das. The six-member MPC kept repo rate untouched at 4 per cent; and reverse repo rate at 3.35 per cent while maintaining the accommodative stance.
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