The minutes of the monetary policy committee meeting of the Reserve Bank of India held earlier this month showed the panel members have reiterated their stand to nurture the country’s patchy economic growth, though they were wary of the inflationary impact of rising commodity prices.
At their three-day meeting between February 3 and February 5, the interest rate setting body unanimously retained the policy repo rate at four per cent while maintaining their accommodative stance to support the domestic economy.
The RBI released on Monday the minutes which showed the members expressing their relief over retail inflation — 4.6 per cent in December 2020 — falling within its medium term target band after breaching the upper tolerance threshold of 6 per cent for six consecutive months.
They also noted the economic growth had turning positive, though it remained uneven across sectors. Yet they were apprehensive about sticky core inflation — which keeps out fuel and food — and rising commodity prices.
According to RBI governor Shaktikanta Das, the macroeconomic environment in terms of both growth and inflation has turned out to be better than anticipated since their December 2020 meeting.
“The growth momentum, however, needs to strengthen further for a sustained revival of the economy and for a quick return of the level of output to the pre-Covid trajectory... Given the sharp moderation in inflation along with a stable near-term outlook, monetary policy needs to continue with the accommodative stance to ensure that the recovery gains greater traction and becomes broad-based’’, he added.
RBI deputy governor Michael D Patra said manufacturing activity was gradually limping back, evident in rising capacity utilization.
Further, with stronger demand conditions and moderate costs, operating profits are improving across the board.
However, he sounded a cautionary note on inflation. “Upside risks to the outlook for inflation persist. First, core inflation remains stubborn and will warrant close monitoring as it has the potential to render the recent fortuitous improvements in the macroeconomic outlook stillborn. For India, the relentless hardening of international crude prices is worrisome.”
He was however, quick to add that though the economic growth is recovering and gathering momentum, it is uneven and the outlook has improved significantly with the rollout of the vaccine programme in the country.
"The growth momentum, however, needs to strengthen further for a sustained revival of the economy and for a quick return of the level of output to the pre-Covid trajectory... Given the sharp moderation in inflation along with a stable near-term outlook, monetary policy needs to continue with the accommodative stance to ensure that the recovery gains greater traction and becomes broad-based’’, he added.
RBI deputy-governor Michael D Patra said manufacturing activity was gradually limping back to growth and this was also evident in rising capacity utilization.
Further, with stronger demand conditions and moderate costs, operating profits are improving across the board.
However, he sounded a cautionary note on inflation. "Upside risks to the outlook for inflation persist. First, core inflation remains stubborn and will warrant close monitoring as it has the potential to render the recent fortuitous improvement.
