The Indian Express (Delhi Edition)
‘Disinflation gains achieved over two years have to be preserved’
EVEN AS consumer price-based inflation has seen moderation in the past two years, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) remained cautious over food inflation risks which may hamper the disinflation process, the minutes of the meeting held on April 3-5 showed on Friday.
In the monetary policy announcedonapril5,thesix-member MPC left the repo rate unchanged at 6.5 per cent and kept thepolicystanceaswithdrawalof accommodation. RBI Governor Shaktikanta Das said looking ahead, the baseline projections show inflation moderating to 4.5 per cent in 2024-25 (FY25) from 5.4 per cent in 2023-24 and 6.7 per cent in 2022-23.
“The gains in disinflation achieved over last two years have tobepreservedandtakenforward towards aligning the headline inflationtothe4percenttargetona durable basis,” Das wrote in the minutes of the MPC.
“This success in the disinflationprocessshouldnotdistractus fromthevulnerabilityoftheinflation trajectory to the frequent incidencesofsupplysideshocks,especially to food inflation due to adverseweathereventsandother factors,” he said. Das voted for keeping the policy repo rate unchangedandtocontinuewiththe focus on withdrawal of accommodation.
Overlappingfoodpriceshocks, apart from imparting volatility to headlineinflation,mayalsoresult in spillovers to core inflation. Lingering geo-political tensions and their impact on commodity prices and supply chains are also adding to uncertainties in the inflation trajectory. These considerationscallformonetarypolicyactions to tread the last mile of disinflation with extreme care of disinflationwithextremecare,the Governor said.
Monetarypolicytransmission is continuing and inflation expectationsofhouseholdsarealsogetting further anchored. At this stage, we should stay the course and remain vigilant, he said.
RBI’S Deputy Governor Michael Debabrata Patra said the recent inflation prints and high frequency data on salient food prices indicate that food inflation risks remain elevated.
Arelativelyshallowandshortlived winter trough is giving way to a build-up of price momentum as summer sets in, with forecasts of rising temperatures up to May 2024. Some global food prices are firming up in an environment of risinginputcostsandsupplychain pressures, Patra, who voted for status quo on the policy rate and stance, said. In the MPC minutes,
Patra wrote that the headroom providedbythesteadycoredisinflation and fuel price deflation doesnotassureafasteralignment of the headline with the target.
“Consequently,headlineinflation can be expected to remain in theupperreachesofthetolerance band until favourable base effects comeintoplayinthesecondquarter of 2024-25. Hence, conditions are not yet in place for any let-up in the restrictive stance of monetarypolicy,”thedeputygovernor said. MPC member Rajiv Ranjan Cpiheadlineinflationmoderation remains on anticipated lines, though the diverging trajectory between food and core inflation continues.