MUMBAI: The members of the Reserve Bank rate-setting panel in the minutes of its December meeting released on Friday said high prices are the cause for demand slowdown, and aligning inflation to the central bank’s 4% target is the key to ensuring sustained economic growth.
“The monetary policy stance is open to support growth, but it must await the ebbing of inflation on a durable basis or else the uneven progress made so far in disinflation will get dissipated,” deputy governor Michael Patra wrote.
Inflation is likely to remain contained as the disinflationary effect of past monetary policy actions continues to play out. Headline inflation is expected to ease to 4.5% in Q4 and further to 4% by Q1 of next fiscal, said ex-RBI Governor Shaktikanta Das.
External member Saugata Bhattacharya said both growth and inflation have worsened, and the risk of making a “policy error” was higher now compared to the October policy.
“The policy priority at this juncture has to be on restoring inflation growth balance,” Das underlined in his last monetary policy committee meeting.
Lower inflation will enhance households’ disposable income and increase their purchasing power, and this approach would support consumption and investment demand, Das added.
Nagesh Kumar called for a 25 basis points reduction in policy, saying “I believe a rate cut would help in reviving economic growth without worsening the inflationary situation, which may soften with seasonal correction in prices.”
Kumar said the limited impact monetary policy has on food inflation alongside the sharp slowdown in growth as reasons to shift policy gears.
Lower inflation to enhance disposable income
Lower inflation will enhance disposable income and increase purchasing power, and this would support consumption and investment demand, Das said. Nagesh kumar called for a 25 basis points reduction in policy, saying “I believe a rate cut would help in reviving economic growth without worsening the inflationary situation.”