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MUMBAI: Hinting at the need for the RBI to be growth-supportive in its policy, deputy governor Michael Patra said that India’s growth story is as weak as it was at the time of the 2013 ‘taper tantrum’ and the war in Europe had tilted the balance of risks downward. Patra added that the hostilities may call for a review in RBI’s April policy of the 7.8% growth forecast the central bank made in February.
“Consequently, the policy stance has to be carefully calibrated. Monetary policy remains in accommodative mode and continues to engender financial conditions that are supportive of growth. Even though fiscal consolidation is under way, there is still some stimulus in the economy that will last through FY23, as estimates of the fiscal impulse suggest,” he said.
The deputy governor’s statement comes at a time when there is widespread speculation on whether the war would compel the central bank to raise rates in its policy meeting next month. An increase in commodity prices worldwide has raised expectations of policy tightening.
Patra, however, played down inflationary pressures. “Current inflation dynamics are markedly different from those troubled times… For the most part, inflation has been driven up by rising food prices. But this time around, resolute and strategic actions to augment the supplies of inflation-sensitive commodities broke the back of these price spikes and tamed headline inflation,” said Patra.
“Clearly, recent geopolitical developments pose an upside risk and the upcoming meeting of the MPC in April will provide a thorough re-assessment. But the focus of monetary policy on price stability with clear accountability and the government’s proactive responses to keep prices in check provides confidence that India will weather this storm,” said Patra.
“Consequently, the policy stance has to be carefully calibrated. Monetary policy remains in accommodative mode and continues to engender financial conditions that are supportive of growth. Even though fiscal consolidation is under way, there is still some stimulus in the economy that will last through FY23, as estimates of the fiscal impulse suggest,” he said.
The deputy governor’s statement comes at a time when there is widespread speculation on whether the war would compel the central bank to raise rates in its policy meeting next month. An increase in commodity prices worldwide has raised expectations of policy tightening.
Patra, however, played down inflationary pressures. “Current inflation dynamics are markedly different from those troubled times… For the most part, inflation has been driven up by rising food prices. But this time around, resolute and strategic actions to augment the supplies of inflation-sensitive commodities broke the back of these price spikes and tamed headline inflation,” said Patra.
“Clearly, recent geopolitical developments pose an upside risk and the upcoming meeting of the MPC in April will provide a thorough re-assessment. But the focus of monetary policy on price stability with clear accountability and the government’s proactive responses to keep prices in check provides confidence that India will weather this storm,” said Patra.
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