Elaborating on the rationale behind keeping the interest rate unchanged despite benign inflation outlook, Shaktikanta Das said, “The success in the disinflation process should not distract us from the vulnerability of the inflation trajectory to the frequent incidences.
The gains in disinflation achieved over the last two years have to be preserved and taken forward towards aligning the headline inflation to the 4 per cent target on a durable basis, said Shaktikanta Das, Governor of the Reserve Bank of India. The Reserve Bank of India Monetary Policy Committee had, on April 5, unanimously decided to keep the key interest rates unchanged at 6.50 per cent. The RBI’s MPC had voted by a 5:1 majority to keep key rates unchanged at 6.50 per cent.
Elaborating on the rationale behind keeping the interest rate unchanged despite benign inflation outlook, Shaktikanta Das said, “The success in the disinflation process should not distract us from the vulnerability of the inflation trajectory to the frequent incidences of supply side shocks, especially to food inflation due to adverse weather events and other factors. Overlapping food price shocks, apart from imparting volatility to headline inflation, may also result 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 considerations call for monetary policy actions to tread the last mile of disinflation with extreme care.”
While the Indian economy is growing at a robust pace with an average annual growth of 8 per cent during the last three years, the RBI MPC stated that the path of disinflation needs to be sustained till inflation reaches the 4 per cent target and so, the decision to keep the repo rate unchanged was a welcome move.
In a release, the RBI said that the monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission. “The MPC will remain resolute in its commitment to aligning inflation to the target. The MPC believes that durable price stability would set strong foundations for a period of high growth. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth,” it said.
In a statement, Shaktikanta Das said that India continues to be the fastest growing major economy in the world, supported by an upturn in investment cycle and revival in manufacturing while services sector too continues to grow at a strong pace.
CPI headline inflation during January-February 2024 too has moderated from the elevated level seen in December 2023 (5.7 per cent). “The persistent and broad-based softening in CPI core inflation (CPI excluding food and fuel inflation) by 180 bps since June 2023 is driving the disinflation process, though volatile and elevated food inflation is disrupting its pace,” the RBI Governor said, while maintaining that the baseline projections show inflation moderating to 4.5 per cent in 2024-25 from 5.4 per cent in 2023-24 and 6.7 per cent in 2022-23.
Looking ahead, Shaktikanta Das also maintained that the growth prospects of the Indian economy in 2024-25 looks bright. “Expectations of normal southwest monsoon in 2024 augur well for the agricultural sector and rural demand. Strengthening rural demand, along with rising consumer confidence and optimism on employment and income, are expected to boost private consumption. Prospects of the manufacturing and services sectors also remain bright. Upbeat business outlook of firms, healthy corporate and bank balance sheets, upturn in private capex cycle with capacity utilisation ruling above the long period average can be expected to give further boost to domestic investment activity. Improving global growth and international trade prospects may provide thrust to external demand,” he said in a statement.
The strong growth momentum, together with the 2024-25 GDP projection, give the policy space to focus on price stability. “Price stability is our mandated goal and it sets strong foundations for a period of high growth,” he said.
Given these growth inflation dynamics, Shaktikanta Das added, the extant monetary policy setting is well positioned.
Dr Shashanka Bhide, Dr Ashima Goyal, Dr Rajiv Ranjan, Dr Michael Debabrata Patra and Shaktikanta Das had voted to keep the policy repo rate unchanged at 6.50 per cent. Prof Jayanth R Varma voted to reduce the policy repo rate by 25 basis points.
Further, Dr Shashanka Bhide, Dr Ashima Goyal, Dr Rajiv Ranjan, Dr Michael Debabrata Patra and Shaktikanta Das had voted to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. Prof Jayanth R Varma voted for a change in stance to neutral.
Source:financialexpress.com