Reserve Bank of India (RBI) announced minutes of its latest Monetary Policy Committee (MPC) meeting today. MPC member Dr. Nagesh Kumar stated that in the highly uncertain current economic environment, however, prudence requires waiting for greater clarity to emerge on the impact before any monetary policy response. One needs to keep an eye on the evolving geopolitical situation in West Asia and its implications for the Indian macroeconomic outlook, especially the growth-inflation dynamics.
Saugata Bhattacharya noted that the MPC forecasts on growth and inflation point to a need for caution in changing the policy rate, in terms of the risks of either metric, despite the quantitative forecasts having only limited traction, given the prevailing uncertainty. The challenge remains to determine the extent of the shocks being transitory versus persistently percolating through the economy, and the time expected for both inflation and growth to revert to their targets and aspirations, respectively, has further increased.
Ram Singh stated that while the economy has withstood the conflict spillovers with limited impact so far, the strains are increasingly becoming visible. The El Nino weather phenomenon can significantly impact agricultural growth and rural demand. In such an environment, the MP should not dampen the modest but encouraging signs of a pick-up in private investment. We must design policy carefully to support growth without risking the unanchoring of inflation expectations.
Indranil Bhattacharyya highlighted that while demand-pull inflation may call for pre-emptive action to effectively anchor inflation expectations, cost-push inflation induced by supply shocks warrants greater caution – gradualism – in policy making. In view of these factors, is prudent to wait for greater clarity to emerge from the data before deciding on any policy action.
Poonam Gupta noted that MPC ought to wait a bit more for global as well as weather related uncertainties to play out over the coming months, before taking a call on whether and when to reverse the policy cycle.
RBI Governor Sanjay Malhotra noted that India’s economic situation is quite strong and healthy vis-?-vis many of our peers. We are one of the fastest growing major economies and our inflation has been benign in the past year. However, he highlighted the need to be watchful of the inflation trajectory. Going forward, revision in retail prices of petrol and diesel in May would lead to higher fuel inflation in the coming months. WPI for April is elevated and cost pressures from higher energy and other input prices could also feed into core inflation. Therefore, we would continue to be data dependent and remain vigilant about inflation getting generalized, which can unhinge inflation expectations
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