India’s central bank wants to focus all its energies on reviving the country’s economic growth given that inflation’s momentum is declining, Michael Patra, deputy governor of the Reserve Bank of India, said on Wednesday.
Consumer prices were up 6.01% in January, compared with a revised 5.66% in the previous month, boosted by rising costs of food, fuel and household items.
But the RBI’s monetary policy committee (MPC) left the benchmark repo rate unchanged at 4.0%, sticking to its accommodative policy stance to help the economy recover from the pandemic.
“Our sense is that headline inflation has peaked in January and from here on it will ease down to the target of 4% by the last quarter of 2022,” Patra said.
“And this has provided us the space to maintain policy rates low and persevere with an accommodative stance so that we can focus all energies on accelerating and broadening the recovery,” said Patra, who spoke at the Asia Economic Dialogue.
The RBI has come under criticism from several quarters, including economists, for not unwinding its extraordinary monetary stimulus despite inflation having crept up towards the upper end of the RBI’s 2-6% target band.
Patra said he thinks the view that the RBI is behind the curve on withdrawing the monetary policy stimulus is unfair.
After India endured the worst growth contractions globally in the initial phase of the pandemic, support for economic recovery was still warranted, he said.
Patra said inflation in India is “appearing elevated purely due to base effects” and should come down soon with monthly inflation momentum clearly showing a declining trend.
He said the RBI had the headroom to support growth and it would do so.
Patra also said India would be likely to take a different path compared to the rest of the world in terms of its monetary policy going ahead and noted that the RBI deserves the right to choose its own time for normalising policy.
- Reuters, with additional editing by George Russell
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