FILE PHOTO: The Reserve Bank of India seal is pictured on a gate outside the RBI headquarters in Mumbai, India, February 2, 2016. REUTERS/Danish Siddiqui
MUMBAI :India needs to continue monetary policy support for the economy while remaining watchful of inflationary pressures, Reserve Bank of India (RBI) Governor Shaktikanta Das said in the minutes of the latest monetary policy committee (MPC) meeting.
“Macroeconomic policies have to be carefully nuanced by making judicious policy choices,” Das wrote in the minutes of the MPC’s August meeting released on Friday.
“Continued policy support with a focus on revival and sustenance of growth is indeed the most desirable and judicious policy option at this moment.”
Earlier this month India’s Monetary Policy Committee (MPC) held rates steady and said it would continue to retain its accommodative policy stance until growth has revived on a sustainable basis, while ensuring inflation remains within target going ahead.
The mandate requires RBI to target a medium-term inflation rate of 4per cent while trying to keep it within 2per cent and 6per cent at all times, but retail inflation has breached the upper bound of this band twice so far in 2021.
Most MPC members cited concerns about inflationary pressures in the economy and rising household inflation expectations, but felt it was too early to increase the repo rate.
“The MPC’s current mandate is to set the policy repo rate and the stance of the monetary policy,” said Mridul Saggar, RBI executive director.
“Getting the timing and sequence of policy change wrong and inviting policy reversals later can result in costly increase in output and inflation volatility,” Saggar added.
Deputy Governor Michael Patra wrote: “The highest priority now is to revive growth along a sustainable trajectory that becomes compatible with the inflation target as the pandemic recedes.”
The lone dissenter on the accommodative stance, MPC member Jayant Varma, said the current reverse repo rate was inappropriate and should be brought closer to the repo rate to anchor inflation expectations better.
“While growth concerns dominated the MPC’s August 2021 minutes, the underlying unease related to inflation was also palpable,” said Aditi Nayar, chief economist at rating agency ICRA.
“The vote for continuing the accommodative monetary policy stance is expected to remain non-unanimous in the October 2021 policy review as well, with a more distinctive shift in the tone in the December 2021 policy review,” Nayar added.