RBI ups inflation projection

NEW DELHI: The Reserve Bank of India’s Monetary Policy Committee (MPC) reiterated its commitment to reviving sustainable economic growth even as it raised the inflation projection for the current fiscal year to 5.7%, an increase of 60 basis points – one basis point is one hundredth of a percentage point – compared to the projection in its June meeting.

There is no doubt about what RBI thinks is more important at this point in time; RBI governor Shaktikanta Das (he quoted Martin Luther King Jr in his comments) termed inflationary pressures “transitory”, and “driven by adverse supply side factors” and was unequivocal that “at this stage... continued policy support from all aides -- fiscal, monetary, and sectoral -- is required to nurture the nascent and hesitant recovery”. And the policy rate (at 4%) and monetary policy stance have been kept unchanged at 4% and accommodative.

The message is clear: RBI thinks growth is a concern, not inflation. The MPC resolution also put the onus of bringing down petrol-diesel prices on the Union and state governments through tax reduction. While it has retained its 2021-22 GDP growth forecast of 9.5%, it has underlined demand side headwinds to the ongoing economic recovery. Experts have highlighted two facts -- a difference of views within MPC on the question of retaining the accommodative policy stance and the central bank announcing additional variable rate reverse repo auctions -to argue that the monetary policy will see a gradual normalisation.