Monetary transmission and bank credit flows have improved, but they need to become stronger.
Since inflation is expected to come down, it’s prudent to continue with a focus on growth, Reserve Bank of India (RBI) Governor Shaktikanta Das said. The economy also needs monetary stimulus, even as the inflation remains uncertain, according to the minutes of the February Monetary Policy Committee (MPC) meeting released Thursday. The sluggish growth can be revived by robust monetary transmission and bank credit flows, the minutes of the MPC meet also showed Shaktikanta Das as saying. “Monetary transmission and bank credit flows have improved, but they need to become stronger. While the macroeconomy needs further monetary stimulus, the inflation outlook continues to be uncertain”, Shaktikanta Das added.
In its last monetary policy meeting for FY20, the RBI MPC kept the repo rate unchanged at 5.15 percent and also decided to continue with the accommodative stance. The meet came in the backdrop of the ongoing slowdown. The Indian economy is seeing a slowdown for some time now on account of both domestic and global factors. According to the first GDP advance estimates, the economy is expected to grow at 5 per cent in FY20.
The retail inflation lately has been more than 6 per cent with the food inflation on the upward trajectory. In January 2020, the retail inflation was recorded at 7.59 per cent, much above the medium-term target set by the RBI. The RBI’s target is 4 per cent with a margin of two percentage points on either side. It was in May 2014, the previous high for retail inflation was 8.3 per cent. The food inflation stood at 13.63 per cent in January 2020 as against (-) 2.24 per cent in January 2019. The food inflation has been on the rise since January last year when it was last recorded at 1.97 per cent.