Published On: Mon, Feb 22nd, 2021

Moderate inflation in India provides room to support growth – RBI MPC minutes

MUMBAI (Reuters) – Moderate inflation and a stable near-term outlook warrant keeping India’s monetary policy accommodative to support a broad-based recovery from the pandemic, minutes of the latest monetary policy committee meeting showed on Monday.

January retail inflation stood at 4.06%, its lowest since September 2019, compared with 4.59% in December, but core inflation stayed high between 5.5% and 5.7% according to a spot poll of economists. (Photo/AFP)

The Reserve Bank of India kept rates steady at record low levels this month and said it would maintain support for recovery from the coronavirus by ensuring ample liquidity.

“The near-term outlook for inflation appears less risky than the near-term challenges for growth which warrant continuing policy support, at least until the elusive engine of investment fires and consumption, the mainstay of aggregate demand in India, stabilizes,” Michael Patra, RBI deputy governor and member of the MPC, wrote.

Governor Shaktikanta Das said the initial growth revival was propelled by demand, but indications now were that growth impulses were now being driven by a pick-up in activity across manufacturing and services.

“Growth, although uneven, is recovering and gathering momentum, and the outlook has improved significantly with the rollout of the vaccine programme in the country,” Das said.

India’s industrial output rose 1% in December versus the projection of a 0.2% contraction.

“Accommodative monetary policy stance is needed to strengthen ongoing economic recovery enabling expansion of both output and demand,” MPC member Shashanka Bhide wrote.

Most members however did highlight the upside risks to inflation and raised concerns over core inflation in recent months.

January retail inflation stood at 4.06%, its lowest since September 2019, compared with 4.59% in December, but core inflation stayed high between 5.5% and 5.7% according to a spot poll of economists.

“Core inflation remains stubborn and will warrant close monitoring as it has the potential to render the recent fortuitous improvements in the macroeconomic outlook stillborn,” RBI’s Patra wrote.

Members also highlighted risks from rising international commodity prices, particularly crude oil, which are translating into higher input costs.

Retail prices of heavily taxed gasoline and gasoil in India have touched record highs due to the spurt in global prices.

“Proactive supply-side measures, particularly in enabling a calibrated unwinding of high indirect taxes on petrol and diesel – in a co-ordinated manner by centre and states – are critical to contain further build-up of cost pressures in the economy,” Das wrote.


Disclaimer :- This story has not been edited by The Sen Times staff and is auto-generated from news agency feeds. Source: Reuters


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