MPC minutes: Growth momentum
needs to strengthen further, says RBI Guv
The
country's economic growth momentum needs to strengthen further, said RBI
governor Shaktikanta Das during the latest monetary policy meeting, according
to the minutes released by the central bank.
"Growth,
although uneven, is recovering and gathering momentum, and the outlook has
improved significantly with the rollout of the vaccine programme in the
country. The growth momentum, however, needs to strengthen further for a
sustained revival of the economy and for a quick return of the level of output
to the pre-Covid trajectory," said Das.
During
the monetary policy meeting, held between February 3-5, the RBI decided to
leave benchmark interest rate unchanged at 4 per cent but maintained an
accommodative stance, implying rate cuts in the future if need arises to
support the economy hit by the Covid-19 pandemic.
All the
six members of the MPC had voted for keeping the policy repo rate unchanged.
"The
sharp correction in food inflation has improved the near-term headline
inflation outlook, although core inflation pressures persist," said Das
according to the MPC minutes released on Monday."
Consistent
with the accommodative stance of the monetary policy, the Reserve Bank remains
committed to ensure the availability of ample liquidity in the system to foster
congenial financial conditions for the recovery to gain traction, said Das.
The RBI
has been set a medium-term target to keep retail inflation at 4 per cent with a
bias of +/- 2 per cent on the either side.
The
next meeting of the monetary policy committee is scheduled between April 5-7.
"Upside
risks to the outlook for inflation persist. First, core inflation remains
stubborn and will warrant close monitoring as it has the potential to render
the recent fortuitous improvements in the macroeconomic outlook
stillborn," said Michael Patra, an MPC member.
"Rising
international commodity prices are being watched the world over with concern as
heralding the return of inflation. For India, the relentless hardening of
international crude prices is worrisome," he said.
On the
near term challenges for growth, Micheal Patra said, concerns about financial
stability have risen, adding that the recent new highs scaled by equity markets
could be driven by irrational exuberance.
"It
is difficult to tell in an environment of exceptionally low interest rates all
around, large corporate profits but still no capex to write home about, and
high levels of market borrowings," he said.
"Food
prices are at near bottom and though they may start firming up from the first
quarter of FY22 with some price build up aided partly from firming food and
non-food international commodity prices, high food inflation like last year is
unlikely to be repeated," said Mridul Saggar, another MPC member.
"However,
cost-push increases may come from higher crude oil prices that will feed into
costs, especially fertiliser prices and as they get factored in MSPs," he
said.
Mridul
Saggr said the growth is still fragile and that support need to be extended
into the first quarter of next financial year and longer if necessary, though
with risk of a re-calibration in some scenarios such as one in which core
inflation momentum picks up further.
Ashima
Goyal, another member of the MPC noted that although growth has turned
positive, output remains below 2019 levels.
"Excess
capacity continues, supply chains have room to normalize much further, and
unemployment rates have increased despite a recovery in employment, because of
the rise in labour participation rates as willingness to work rose with the
waning of Covid-19 fears," she said.
www.business-standard.com dt. 23.02.2021