India rate-setters say inflation outlook outweighed by war

There is a growing chorus among Indian monetary policy officials that the central bank’s outlook on inflation and growth is being pushed by events, including the war in Ukraine, prompting a change of course at the next meeting in April. Is.

Shashank Bhide, an external member in the six-member Monetary Policy Committee, is the latest rate-setter to say that the Reserve Bank of India’s February predictions will need to be revised given the threat of a war-induced surge in energy and food prices. for global economic development.

“What we are seeing now is quite different from what we have seen in early February,” Bhide said in an interview on Friday. “The projections have to take into account the changed scenario.”

Bhide’s remarks follow similar statements by his MPC colleagues Jayant Ram Verma, Ashima Goel and Michael Patra, who said last week that the estimates would require a “thorough re-evaluation” at their meeting early next month.

India’s retail inflation remains above RBI’s 6% tolerance limit

Even before the war, inflation topped the RBI’s 6% upper tolerance limit in 2022, and supply disruptions that have sent oil above $100 a barrel have prompted price-rises to meet the full-year target. The land has been prepared. That result would be hard to ignore for the current growth-focused policy panel, led by Governor Shaktikanta Das, as its primary task is to maintain price stability.

Although developments are unlikely to prompt the MPC to raise interest rates, they may force the panel to clarify its priorities as concerns around the war outweigh the impact of the COVID-19 pandemic. .

Bhide said it does not matter whether the central bank decides to go slow on policy normalization, or go back to its old accommodative measures. “What will be important is to gradually address the concerns of the times,” he said.

negative shock

While the central bank last month attributed the softening of food prices to a softening of its 4.5% inflation forecast for next year, the conflict presents a negative blow to that outlook. This is because the South Asian country is the world’s largest importer of palm, soybean and sunflower oil, while Ukraine and Russia account for about 80% of the global sunflower oil cargo.

“Food inflation will clearly be hit by this crisis – both in terms of prices and exchange rates,” said Bhide, an agricultural economist. It is difficult to predict the trajectory of inflation going forward, as it depends on how long the prices will remain elevated, he said.

Here are some more excerpts from the interview:

“I don’t think the development implications are going to be different from what is happening globally,” Bhide said. “The mandate for the MPC to remain inflationary and ensure that growth conditions are favourable,” he said, defending the panel’s 5-1 vote to keep the policy lax.

Responding to MPC’s lone dissident Verma’s criticism that the central bank runs the risk of falling behind the curve by lax policy for too long, Bhide said it is not the central bank’s objective to look at the curve. “Reliability is certainly important and credibility is in terms of results,” he said.

– With the help of Prateek Parija.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)