RBI has its priorities set as India unblocks

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The economic disruption caused by the Covid-19 pandemic has put growth concerns high on the list of priorities for Indian monetary policy makers and relegated the inflation target to the background, according to their minutes. meeting.

The backbone of growth increases the chances that interest rates will stay low longer to ensure economic recovery. Earlier this month, the six-member Monetary Policy Committee left the benchmark buyback rate unchanged for a sixth consecutive meeting, even as the Reserve Bank of India broadened its version of the easing program quantitative to stimulate economic activity.

The minutes of the June 2-4 MPC meeting released on Friday showed policymakers agreed that the second wave of the pandemic required urgent policy interventions.

“The second wave of Covid-19 has changed the short-term outlook, and political support from all sides – fiscal, monetary and sectoral – is needed to foster the recovery and accelerate the return to normalcy,” the governor said Shaktikanta Das. in the minutes. “The impact on economic activity from the second wave of the virus necessitated continued monetary measures to support the process of economic recovery in order to make it sustainable.”

The RBI sees Asia’s third-largest economy grow 9.5% in the year that began April 1, slower than the 10.5% pace it predicted before a deadly second outbreak of coronavirus infections. The central bank expects inflation to end at 5.1% this year, towards the upper end of its target range of 2% -6%.

The MPC is convinced that the current gains in price growth – fueled by supply problems, increased fuel taxes and higher commodity prices – do not justify a withdrawal of the ease measures put in place since. Last year.

Here are some excerpts from the minutes:

Michael Debabrata Patra, the deputy governor overseeing monetary policy, said he viewed the recent price spike as being supply driven and devoid of any lingering demand. “The growth-inflation trade-off and, therefore, policy choices have shifted towards increased accommodation,” he said.

Mridul Saggar, executive director of RBI, cautioned against withdrawing political support prematurely, while saying it is necessary to “support growth for now, as the flexible inflation targeting framework allows for a temporary deviation from target as long as inflation is expected to be within tolerance bands “.

Ashima Goyal, a conciliatory member of the panel, said that since the output gap has widened and inflation is expected to remain largely within the tolerance range, macroeconomic policy clearly needs to stimulate demand further.

Jayanth R. Varma, professor at the Indian Institute of Management in Ahmedabad, said the balance between risk and reward continues to favor monetary accommodation.

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