Latest decision of the Monetary Policy Committee (MPC), Reserve Bank of India (RBI) to extend pause in monetary tightening The focus on the return of accommodation reflects the rate setting panel’s confident resolve to keep inflation front and center of its approach to policy. Shaktikanta Das, governor of the Reserve Bank of India, had categorically stated that “the best contribution of monetary policy to the economy’s ability to realize its potential is to ensure price stability”. The MPC’s recent unwavering focus on price stability has been primarily informed by its mandate to achieve a consumer price index (CPI) inflation target of 4%, a target it has been struggling to fix since January 2021. – a period during which inflation remained above or close to the upper tolerance band of 6% in 20 out of 27 months. Mr Das acknowledged that even though headline inflation eased significantly in March and April, slowing to 4.7% in the first month of the current fiscal from an average pace of 6.7% in 2022-23, retail price gains The target was ‘still above’ and is expected to remain so as per RBI’s projections for 2023-24. The MPC, which projected CPI inflation to average 5.1% over the 12 months ending March 2024, is cognizant of the ongoing challenges in aligning inflation with the target given global uncertainties.
In particular, Shri Das highlighted the spatial and temporal distribution of rainfall during this monsoon in view of El Nino conditions, unabated geo-political tensions, uncertainty over international commodity prices including sugar, rice and crude oil and volatility in global financial markets. Got the green signal. As an upside risk to the MPC’s inflation projections. Another key factor influencing the RBI’s policy stance is its belief that macroeconomic fundamentals have strengthened following a continued focus on maintaining price and financial stability. To be sure, the rise in credit costs has slowed investment and consumption activity last year since the RBI began raising its benchmark interest rates in May 2022. Bank credit data show the pace of credit growth to industry, especially the MSME and medium sectors, slowed significantly last year. The sequential contraction in private consumption expenditure estimated in Q4 of last fiscal is also likely to be, to some extent, a result of higher borrowing costs. Yet, as Mr. Das insisted, policy makers cannot afford to take their eyes off inflation. Price stability is ultimately a public good and achieving sustainable deflation should remain a non-negotiable goal, especially amid rising income inequality and high levels of unemployment.