June 19, 2021 2:06:14 am
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), which kept interest rates unchanged in the last review, is of the view that the economy’s revival should be the “most desirable policy option” to mitigate the impact of Covid on the economy, according to minutes of the meeting released on Friday.
“In fact, focus on revival and sustenance of growth is the most desirable policy option while of course remaining watchful of the inflation trajectory,” RBI Governor Shaktikanta Das said at the MPC meeting. The RBI had slashed the growth forecast from 10.5 per cent to 9.5 per cent for FY22.
However, data released after the policy review showed India’s annual retail inflation rate rose 6.30 per cent year-on-year in May, breaching the RBI’s upper tolerance band of 6 per cent and up from 4.29 per cent in April and above analysts’ estimate of 5.30 per cent. The MPC meeting on June 4 kept the main repo rate unchanged at 4 per cent.
According to Das, the emphasis should be to continue with accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward. In this context, the phrase ‘to revive’ needs to be brought in so as to strengthen the forward guidance and demonstrate the unambiguous commitment of the MPC to revive and sustain the growth process, Das said.
According to the MPC minutes, the dent on economic activity due to the second wave of the virus has necessitated the continuation of monetary measures to support the process of economic recovery to make it durable. “At the same time, there is a need to strengthen forward guidance by stressing the aspect of revival of growth,” Das said.
“Indian inflation rates have been consistently well above the mid point of the tolerance zone for an extended period and are forecast to remain elevated for some time,” said Jayanth Varma, MPC member.
“I vote for keeping the policy repo rate unchanged and the stance accommodative as long as necessary to revive and sustain growth on a durable basis,” MPC member Ashima Goyal said.
“Taking full cognisance of these policy trade-offs, I judge that withdrawing support to growth at this stage may be premature as it may dampen second-round effects,” said Mridul K Saggar, ED, RBI.
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