Country cannot risk another spike in inflation: RBI Governor Das

The Uncut


Mumbai. Reserve Bank of India Governor Shaktikanta Das said in the Monetary Policy Committee meeting this month that the country cannot afford another round of rapid inflation. He said the best approach at present would be to adopt a flexible approach and wait for inflation to come permanently in line with the central bank’s target.

He said this while voting in favor of keeping the policy rate unchanged in the meeting held from October 7 to 9 this month.
According to the minutes of the Monetary Policy Committee (MPC) meeting released on Wednesday, Das said, “Monetary policy can sustainably support economic growth only by maintaining stability at the price level.” In the meeting, the MPC decided to maintain the key policy rate repo at 6.5 percent for the 10th consecutive time. Out of six members, five voted in favor of it while one voted in support of reducing it.

However, the committee unanimously decided to withdraw its earlier liberal stance and change its stance to neutral.
This was the first meeting of the MPC after its reconstitution. The three newly appointed external members are Ram Singh, Saugata Bhattacharya and Nagesh Kumar. According to the minutes of the meeting, Das said that monetary policy can sustainably support economic growth only by maintaining price stability.

“Taking all things into account, I vote to change the current stance to ‘neutral’ while keeping the policy repo rate unchanged at 6.5 percent,” he said. Das said that overall the Indian economy presents a picture of stability and strength. There is a balance between inflation and growth. He said that despite the near-term increase in inflation, headline inflation is expected to remain around the target of four per cent at the end of the year and the beginning of next year.

Das said, “Overall, the circumstances are suitable for a change in the neutral monetary policy stance by withdrawing the accommodative stance. This will bring greater flexibility and options at the monetary policy level to act in accordance with the emerging outlook. “It also provides scope for keeping an eye on uncertainties with rising global tensions and fluctuations in commodity prices….” Expressing similar views, RBI Deputy Governor Michael Debabrata Patra had said that until inflation comes permanently close to the target, it would be appropriate to take a wait and evaluate approach with respect to the policy rate. At the meeting, they voted to maintain status quo on policy rates but to neutralise.

Another member, RBI Executive Director Rajeev Ranjan, had said that between now and December, things will become more clear on some uncertainties. These uncertainties include elections in the US, risks globally and Chinese fiscal stimulus and global commodity prices.

Ranjan had said, “At this time, India’s strong growth story is helping us continue to focus on inflation and maintain the policy rate at 6.5 percent. “That is why I am voting in favor of changing the status quo and stance on the policy rate to neutral.” External member Nagesh Kumar voted in favor of reducing the repo rate by 0.25 percent. He had said that this is an opportune moment for the RBI to start the process of normalizing monetary policy. Two other outside members of the reconstituted MPC… Saugata Bhattacharya and Ram Singh also voted in favor of keeping the policy rate unchanged. However, he talked about changing the stance to neutral.

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