MUMBAI (Reuters) – India’s monetary policy committee (MPC) will remain focused on aligning inflation to its target of 4%, and only after it achieves that on a sustained basis, will its attention shift to the objective of growth, the October meeting minutes showed.
“Our fundamental goal is to align inflation with the 4% target and anchor inflation expectations,” Reserve Bank of India (RBI) Governor Shaktikanta Das said in the minutes released on Friday.
Recurring incidences of large and overlapping supply-side shocks bring with them the risks of generalisation of inflation impulses, possible loss of monetary policy credibility and de-anchoring of inflation expectations, he added.
India’s retail inflation eased to a three-month low of 5.02% in September on the back of softer vegetable prices.
“There is also growing evidence that inflation is undermining growth – people are not increasing discretionary spending in view of high inflation and this is slowing sales growth of corporations,” RBI Deputy Governor Michael Patra said.
The MPC kept its key lending rate steady for a fourth consecutive policy meeting on Oct. 6, as widely expected, but signalled it would keep rates high and liquidity tight to bring inflation closer to its target.
The MPC also retained its “withdrawal of accommodation” stance by a majority of five out of six votes.
External MPC member Ashima Goyal explained that the current stance rules out a rate cut.
“It allows a rise but that will not be required unless there are second round effects from the repeated supply shocks. So far, there are no signs of such pass through. The guidance, therefore, is that future moves will be data-dependent,” she said.
A second external member, Jayanth Varma, who voted against the stance, said successive meetings that promise to withdraw accommodation while actually keeping rates unchanged do not enhance the credibility of the MPC.
“It would be useful for the MPC to communicate its intention to keep real interest rates high enough for as long as is necessary to drive projected inflation close to the 4% target on a sustainable basis.”
Source: Economy - investing.com
