As a result of high inflation, which also breached the 6 per cent band in the middle, the RBI has been maintaining status quo on rates for over a year and there is increasing demand to focus more on its core mandate of price hikes.
Governor Shaktikanta Das on Thursday said the Reserve Bank is “quite optimistic” about its 9.5 per cent GDP growth forecast for FY22 turning out to be true, and will “gradually” relax its 4 per cent target in headline inflation. will take steps to move forward”.
While the RBI had decided to use a 2 percentage point cushion to keep inflation within the 2-6 per cent target band, Das said the Monetary Policy Committee (MPC) will take a call. Continuing with a liberal stance.
As a result of high inflation, which also breached the 6 per cent band in the middle, the RBI has been maintaining status quo on rates for over a year and there is increasing demand to focus more on its core mandate of price hikes.
In the last MPC meeting, one of the six members disagreed on the stance, and called for withdrawal of the accommodative stance.
According to many watchers, the RBI will first change its stance before a possible rollback of pandemic measures or eventually a rate hike.
Speaking at an event organized by The Indian Express and the Financial Times, the governor said fast-moving indicators are “upbeat” on the economy after a reversal as a result of the second wave of the pandemic that began in mid-April.
“Going forward, a number of bullish indicators look upbeat. At this point in time we anticipate a growth of 9.5 per cent for this fiscal and I think that will be good… Quite optimistic about 9.5 per cent growth,” Das said. .
He added that the growth will continue to grow from a sequential outlook with every quarter, and expect the September quarter to be better than June. The only uncertainty is the prospect of a third wave, he said, as businesses and companies have not learned how to deal with the impact of such disruptions.
Meanwhile, on inflation, he said the RBI does not expect “continuous growth” and some moderation beyond the 6 per cent figure.
“…we are cautious, we are very serious about stabilizing inflation expectations and pushing inflation around the target of 4 per cent and we are committed to achieve this in a very non-disruptive manner Das said.
“Going forward, being an inflation targeting institution, our endeavor will be to gradually move towards 4 per cent (inflation) over time. That time has to be decided, today is not the time and we depend on it. Will make a call to the number to come,” he said.
This is the first time the governor has spoken explicitly about his desire to bring inflation back to the 4 per cent target, which is the medium term target set by the government.
He attributed the jump in inflation, which stood at 5.7 per cent in July, to supply-side factors including higher commodity prices.
Pointing out that the high price of diesel and petrol at filling stations is one of the factors driving inflation, Das said that the RBI is engaged with the government on such issues and to bring down the prices of edible oils and pulses. measures were also taken into account.
The RBI had decided to focus on growth by giving additional emphasis on this because if the growth slows down altogether, it will pose huge long-term challenges to revive the economy.
“During the pandemic, instead of the exact (inflation) target of 4 per cent, the MPC has decided to work within the band of 2-6 per cent,” Das said.
RBI expects headline inflation to average 5.7 per cent during FY22. On the growth front, Das said that several fast-moving indicators including two-wheeler sales, passenger car sales, GST e-way bill, electricity consumption and tractor sales have shown growth, which makes him optimistic. .
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