RBI has relinquished its mandate of ensuring price stability to prop up the economy
The Monetary Policy Committee’s decision to leave interest rates unchanged and maintain its “accommodative” policy stance, although with disagreements on one member’s stance, may leave a central bank to be “Knighted” by the unrelenting uncertainty surrounding the pandemic-hit economy. Shows frozen in inactivity. Keeping the status quo, RBI policy makers have underlined that they find themselves stuck in no man’s land. On the one hand, both global and domestic economies have suffered a loss of momentum in the wake of the omicron wave and the uncertainty surrounding the pandemic has made forecast prospects for recovery even more risky. In India, private consumption, which is the mainstay of domestic demand, again shows little sign of traction. The continued rise in international commodity prices, volatility in international financial markets and increased global supply constraints, further heightens the risks to the outlook. The most obvious manifestation of the RBI’s forecast for growth is its forecast for GDP expansion in 2022-23 – a significantly lower 7.8% compared to the 8.0%-8.5% projection made in the Economic Survey. With the services sector’s contact-intensive components and private investment, the central bank actually expects growth in the next fiscal to slow down sharply during the year: from a 17.2% expansion in Q1 to a slowing 4.5% in Q4.
Nor has there been any respite on the price stability front, despite RBI’s daring efforts to reduce risk. According to RBI Governor Shaktikanta Das, consumer price index-based inflation has seen a peak in the current, fourth fiscal quarter and averaged 5.7% after rising ‘closer’ to the upper tolerance limit of 6% in January. And ironically, while Mr. Das acknowledged that the hardening of global crude oil prices poses a major upside risk to the outlook for price gains, monetary officials have prepared to back up his optimistic assumptions. The expected softening of vegetable prices due to the onset of winter and better prospects for food grains production has led him to believe that the “improving inflation outlook” gives him the comfort to keep the policy ‘growth supportive’. Another significant uncertainty, with the MPC forecast for inflation at an average of 4.5% in 2022-23 based on a normal monsoon, the RBI’s rate setting panel placed its primary mandate of ensuring price stability at the altar of providing monetary stimulus to the economy. risked giving up. , At a time when inflation is at multi-decade highs in many countries, prompting several major central banks, including the Federal Reserve in the US, to normalize policy, there is a real risk of the RBI falling behind the curve.
,