Inflation a major concern for MPC
MUMBAI: Concerns over persistently high inflation dominated discussions at the Reserve Bank of India’s (RBI) monetary policy committee (MPC) 4-6 August meeting that kept policy rates unchanged, minutes released on Thursday showed.
Committee members extensively discussed potential challenges from stubborn retail price inflation, which has stayed above RBI’S tolerance band for nearly three quarters. The panel also discussed possible supply-side shocks from lockdown-related disruptions, before deciding to continue with the accommodative stance to nurture an economic recovery.
RBI governor Shaktikanta
Das suggested giving it time for past interest rate cuts take effect. “I also feel that we should wait for some more time for the cumulative 250 basis points reduction in policy rate since February 2019 to seep into the financial system and further reduce interest rates and spreads. Given the uncertain inflation outlook, we have to remain watchful to see that the momentum in inflation does not get entrenched, which is also dependent on effective supplyside measures,” Das said.
India’s retail inflation accelerated to 6.93% in July from 6.23% in June, remaining above the MPC’S target range of 2-6%, while food inflation rose to 9.62%. However, the central bank’s battle against inflation is complicated by the gloomy prospects on India’s gross domestic product, which is expected to contract 21.5% in the June quarter and 5.8% in FY21, according to RBI’S Survey of Professional Forecasters on Macroeconomic Indicators.