delayed spindle

The Reserve Bank of India’s Monetary Policy Committee has of late admitted that its primary remit is, after all, to ensure price stability. Addressing the media on Friday after the announcement of the MPC’s first monetary policy review for the new financial year, RBI Governor Shaktikanta Das said “in order of priorities, we have now put inflation ahead of growth”. After more than three years of prioritizing growth over price stability – in February 2019, and well before the onset of the COVID-19 pandemic – the RBI has retraced the horse to the front of the cart, which is central Best reflected in the bank’s own words. Monetary Policy Target: “Price stability is a necessary precondition for sustainable growth”. It has taken the wrath of war in Europe, with the shock in commodity prices as a salutary reminder to the RBI of the essential centrality of price stability that monetary policy makers cannot afford to become complacent in terms of inflation. Huh. Less than two months after forecasting inflation to average 4.5% in the fiscal year to March 2023, the MPC has raised the forecast by 120 basis points to 5.7%. And that is even as it slashed its earlier estimate for real GDP growth in the current fiscal by 60 basis points to 7.2%. The RBI also clarified that it had left the benchmark interest rates and kept its policy policy unchanged for now, the time has come for the “return of housing” to begin.

To be sure, Russia’s invasion of Ukraine was still two weeks in the future, the last time the RBI’s rate-setting panel finalized its policy review. And yet, the price of crude, which Mr Das cited as the key factor that necessitated revision of the inflation projection and pivot, was already on the boil since December. The price of the Indian basket of crude oil had risen nearly 25% in the two months to February 1, with Brent crude rising 30% in the same period. In fact, in February the only dissident on the MPC on the issue of policy stance, Jayant Verma had stressed the need to look at the likely state of the economy after at least three to four quarters and shift to ‘neutral’. Given that monetary policy operates with a lag. On the other hand, RBI Deputy Governor Michael Patra, who oversees monetary policy, had warned in the last MPC meeting that, “Central banks have a choice: either accept high inflation for some time or destroy demand.” Be prepared to be accountable to do”. With the RBI’s own quarterly projections for inflation now looking at the potential for policy failure through three consecutive quarters of inflation above the 6% upper limit, policy makers have clearly felt that any delay in transitioning the economy would would risk being left out with neither growth nor price stability.