The Reserve Bank of India’s Monetary Policy Committee (MPC) sounded cautious on the inflation outlook, stating that inflation in items other than food and fuel rose sharply to more than 6 per cent, according to minutes of its December 5 meeting published on Wednesday.
The six-member MPC had unanimously decided to maintain the Repo rate at 6.50 per cent during the bi-monthly monetary policy review while staying optimistic on growth. The panel said the benign outlook for headline inflation is driven mainly by the unexpected softening of food inflation and collapse in oil prices in a relatively short period of time. Excluding food items, inflation has remained sticky and elevated, and the output gap remains virtually closed, it said.
The retail inflation rate, which includes food and energy prices, fell to 2.33 per cent on an annual basis, remaining below the RBI’s medium-term target of 4 per cent for a fourth straight month.
Urjit Patel, in his last policy review as the RBI Governor, said, “Although the inflation trajectory has been revised downwards, several uncertainties persist, especially about the medium-term outlook of food inflation and oil prices. Incoming data should help clear the haziness and enable better assessment of the inflation outlook, especially regarding the permanence of the current softness in inflation prints. Hence, I vote for keeping the policy repo rate unchanged and retaining the stance of monetary policy as ‘calibrated tightening’”.
Deputy Governor Viral Acharya said, “it is not easy to ascertain fully at this stage the nature of the collapse of food inflation seen in recent months, particularly in terms of its implications for the food inflation outlook over the medium term. A clearer assessment is particularly clouded by divergence in the direction of price movements in data in key food items provided by the Department of Consumer Affairs (DCA) and realised food inflation for October. Such divergence in the direction is rarely observed. Further examination of data is necessary to understand with greater clarity the drivers of food deflation.”
According to MPC Member Ravindra Dholakia, retaining the stance of calibrated tightening seems totally inconsistent and unjustified.
Govt to ask for interim dividend from RBI
New Delhi: The government will seek an interim dividend from the Reserve Bank of India (RBI) this fiscal, Economic Affairs Secretary Subhash Chandra Garg said on Wednesday. An expert committee on the Economic Capital Framework (ECF) that governs the central bank’s surplus transfer to the government, has almost been finalised, Garg added. “Hopefully soon, it (the ECF composition) will be announced,” he said on the sidelines of an event here.
The finance ministry has asserted that the Centre will meet its fiscal deficit target of 3.3 per cent of GDP for FY19, despite a shortfall in GST collection and an expected boost to spending ahead of 2019 polls. An interim dividend will come in handy in such a situation.
Asked if the government will make an additional capital infusion into public-sector banks, Garg said, “Yes … wait for supplementary demand for grants expected tomorrow.” —FE