RBI panel saw upside risks to inflation, discussed shift in ‘neutral’ stance

By: |
Mumbai | Published: February 22, 2018 4:19:02 AM

The Reserve Bank of India’s Monetary Policy Committee (MPC) had flagged off higher risks to inflation at its ninth meeting held on February 6-7, and some of its members had pointed out that if the inflation trajectory continued to point north, then a change in stance from “neutral” to “withdrawal of accommodation” might have to be considered.

RBI, Monetary Policy Committee, Ahmedabad, Delhi School of Economics, Viral Acharya, kharif crops, inflationAcharya had said that the next few months of inflation and growth data would be key to determining the evolution of policy rates. (Reuters)

The Reserve Bank of India’s Monetary Policy Committee (MPC) had flagged off higher risks to inflation at its ninth meeting held on February 6-7, and some of its members had pointed out that if the inflation trajectory continued to point north, then a change in stance from “neutral” to “withdrawal of accommodation” might have to be considered. The MPC comprising Chetan Ghate, professor, Indian Statistical Institute; Pami Dua, director, Delhi School of Economics; Ravindra H Dholakia, professor, Indian Institute of Management, Ahmedabad; Michael Debabrata Patra, executive director, RBI; Viral Acharya, deputy governor in charge of monetary policy, RBI and Urjit Patel, governor, RBI had left the key repo rate unchanged at 6%. “Looking forward, inflation in the baseline scenario is projected to remain above the target of 4% throughout 2018-19,” Patel had said at the meeting.

“There are several upside risks to inflation, especially from the staggered impact of HRA increases by various state governments; policy for arriving at the minimum support prices for kharif crops; and the fiscal slippage as indicated in the Union Budget, which also has attendant “crowding-out” implications with regard to the cost of private domestic credit.” Patel had also pointed out that since the economic recovery is at a nascent stage and calls for a cautious approach at this juncture, he voted for keeping the policy rate on hold while maintaining a neutral stance.

Acharya had said that the next few months of inflation and growth data would be key to determining the evolution of policy rates. “If growth remains robust and inflation prints continue to project headline inflation a year ahead well above the target, then a change in stance from “neutral” to “withdrawal of accommodation” might have to be considered,” he had argued. Patra had warned that inflation is likely to drift well above the central bank’s target in the near term. “The target is in danger of getting out of reach and over the next few months, the upper tolerance band is under threat. This could seriously dent the credibility of the Committee’s commitment to the target,” he had said. The next meeting of the MPC is scheduled on April 4-5.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition