The RBI governor says the top policy priority is now supporting growth


Mumbai: Reserve Bank of India (RBI) Governor Shaktikant Das On Wednesday, the central bank defended the expected Dovish stance in which the MPC unanimously voted to continue with a favorable policy amid fears of a third wave of Covid-19, saying “our top policy focus and priority is now supporting growth”. Legroom Cooling offers inflation prints.
The remarks came on the heels of an RBI order Monetary Policy Committee (MPC) has kept key policy rates unchanged for the ninth time in a row.
The repo rate was dropped to 4%, which was on the expected lines, while the reverse repo, which has been an effective policy rate since the epidemic hit in March 2020, was kept at a surprisingly unchanged 3.35% despite being prepared by the central bank. The market for the much-needed and delayed rebalancing of liquidity overdoses for a long time.
The policy action was predicted on the assumption that if the omicron type of coronavirus stimulates the third wave of epidemics in India, it could easily increase recovery.
Retail inflation is expected to hover around 5 per cent in the next financial year on easing supply, lower fuel prices and better crop prospects.
For FY22, retail inflation is projected at 5.3 percent and should decline to 4 – 4.3 percent by the end of FY23.
The reduction in excise duty and VAT on petrol and diesel will bring about a “sustainable reduction in inflation” with a direct effect as well as an indirect effect through lower transport costs, Das observed.
Despite being wary of the potential impact of the Omicron variant, the central bank chose to keep its growth forecast unchanged at 9.5 per cent for the current financial year (6.6 per cent in Q3 and 6 per cent in Q4).
However, he added that the recovery is not yet strong enough to be self-sustaining as only some key sector activities have reached pre-epidemic levels, while more important consumer demand and private investment are still far away.
Addressing reporters at the traditional post-policy press, Das elaborated, “Our top priority and focus now is to support growth and revive growth, but maintaining price stability is also our concern with financial stability as we are the central bank targeting inflation.” We are. ”
While activities in various sectors have exceeded pre-epidemic levels, some sectors, such as private consumption and investment, are still lagging behind, Das said.
He acknowledged that the economy was facing a number of challenges in terms of supply disruptions, such as market volatility, rising crude oil and commodity prices, and shortages of containers and chips. “And we have contributed to all of this by adapting to our policy stance.”
Is the RBI risking losing its fight against inflation as it continues to provide liquidity to the already fund-flushed market, Das said, seeing rising inflation in various major advanced economies amid the threat of Omicron, “being cautious was the best option. Us. ”
On why the RBI continues to have a Standing Deposit Facility (SDF) when using variable reverse repo repurchases or VRRRs, Deputy Governor and Head of Monetary Policy Michael D Patra said that the SDF will be used when needed as the RBI has many. All are. Tools in his arsenal.
So we chose VRRRs because they are more market friendly than SDF, he added.
Patra further said that for inclusive growth, it is important to anchor inflation to a specific target and monetary policy, which focuses on medium to long-term results and not on immediate impact, will have to choose appropriate measures for inflation.
The RBI has chosen headline retail inflation and it is expected to fall to 4-4.3 per cent by the end of next financial year. “This gives us more leeway to support growth now,” he noted.
On whether the RBI is ultra-dovish, Das and Patra said that India’s inflation dynamics cannot be compared with those of developed countries.
Das added: “We are fully aware of the complexities of our job and are aware and conscious … we are the central bank targeting inflation and we are fully aware and aware of how important it is to maintain price stability. With financial stability, and also supports growth. ”
Patra said that the terrible problems of the supply chain are slowly being overcome and the new thinking is that today’s surplus will soon become tomorrow’s scarcity and vice versa when everything is settled.
The RBI is now rooting for growth as the economy is heading for a steady inflation of 4 – 4.3 per cent by the end of FY23, giving it more room to support growth, Patra said.

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