Any Shift in Policy Stance Would be Premature and Risky Says RBI Governor

Mumbai: The Reserve Bank of India’s (RBI) governor Shaktikanta Das, in the December’s monetary policy meet said that he expects the overall inflation outlook to be clouded by volatile and uncertain food prices and intermittent weather shocks. He said that the RBI’s rate setting panel i.e. Monetary Policy Committee (MPC) will have to remain highly alert to any signs of generalisation of price impulses that may derail the ongoing process of disinflation, according to the Minutes of the December 8 policy meeting released on Friday.

“We have to remain vigilant and ready to act effectively in our journey towards 4 per cent inflation target,” said Das.

While CPI inflation has been moderating, it is still quite a distance away from the RBI’s mandate of reaching 4 per cent on a durable basis. It rose 5.55 per cent in November due to higher food prices.

“The projected inflation (4.7 per cent) in Q3 of next year, i.e., one year from now, is perilously close to 5 per cent. In these circumstances, monetary policy has to be actively disinflationary. Any shift in policy stance now would be premature and risky,” he said.

He said that the past rate hikes are still working through the economy and it would be desirable to closely monitor their full play out.

Retail inflation rose 5.55 per cent in November, its fastest pace in three months, due to higher food prices.

Deputy Governor Michael Patra said the recent high growth numbers reinforced the view that the output gap in India had turned positive since the beginning of the year and remained so.

"This points to the likelihood of demand-pull shaping the course of inflation outcomes in the period ahead, amplifying future supply shocks," he said.

However, external MPC member Ashima Goyal said that real rates could easily become too high if inflation sustainably approaches 4 per cent by mid-2024 and if nothing is done. “Repeated supply shocks so far have not been able to raise inflation expectations or reverse the decline in core inflation,” said Goyal.

The MPC, which consists of three RBI members and three external members, kept the repo rate unchanged at 6.50 per cent for the fifth consecutive meeting on December 8. However five out of 6 members voted for maintaining the “withdrawal of accomodation stance.”