Continued monetary policy support for economic revival amid the COVID-19 pandemic is necessary while remaining watchful of inflationary pressures, Reserve Bank of India (RBI) Governor Shaktikanta Das said in the minutes of the latest monetary policy committee (MPC) meeting.
RBI Governor underlined the need for closely monitoring the price hike situation in order to anchor the inflation expectations, according to MPC minutes released on Friday, August 20.
“The need of the hour is twofold: first, continue the monetary policy support to the economy; and second, remain watchful of any durable inflationary pressures and sustained price momentum in key components so as to bring back the CPI inflation to four per cent over a period of time in a non-disruptive manner,” said RBI Governor Shaktikanta Das.
Deputy Governor Dr. Michael Debabrata Patra said that the highest priority now is to revive growth along a sustainable trajectory that becomes compatible with the inflation target as the COVID-19 pandemic recedes.
”The economy is struggling to regain the momentum that had gathered in the second half of 2020-21….although it seems meaningful to compare progress with a pre-pandemic year, it needs to be noted that in 2019-20, a cyclical downturn had matured over two and a half years, taking down real GDP growth to its lowest in the 2011-12 based series of national accounts,” said Dr Patra.
”There is substantial slack in resource utilisation in the economy which needs to be drawn in to get economic activity back to normalcy,” he added.
However, MPC member Jayant Varma said that the borrowing rate should be revised. The current reverse repo rate was inappropriate and should be brought closer to the repo rate to anchor inflation expectations better, according to Mr Varma.
In its third bi-monthly monetary policy review for the financial year 2021-22 announced on August 6, the RBI maintained the status quo for the seventh time in a row, keeping the key lending rates steady.
The repo rate- the key interest rate at which the RBI lends money to commercial banks was kept steady at four per cent, and the borrowing rate or reverse repo rate – the rate at which the RBI borrows money from banks, was kept unchanged at 3.35 per cent.
The central bank retained the gross domestic product (GDP) growth projection for the current fiscal at 9.5 per cent, however, given inflationary concerns, it increased the CPI inflation forecast to 5.7 per cent from 5.1 per cent.