Inflationary pressures largely driven by supply shocks, says RBI Dy Guv Patra

RBI Deputy Governor Michael Patra said financial markets are now on edge, trying to second guess the start of normalisation. Under these conditions, monetary policy stances and actions are diverging widely and this by itself is imparting uncertainty.

The Indian economy is emerging from the second wave of the pandemic, Patra said, adding that the recovery appears broad-based and the pivot is manufacturing, but output is still below pre-pandemic levels. Inflation is moderating, but core inflation is still at elevated levels.

He added that in the monetary policy committee (MPC)'s assessment, inflationary pressures are largely driven by supply shocks. Although shocks of this type are typically transitory, the repetitive incidence of shocks is giving inflation a persistent character.

Contributions to inflation are emanating from a narrow group of goods - items constituting around 20% of the CPI are responsible for more than 50% of inflation. The analysis of inflation dynamics indicates that the easing of headline inflation from current levels is likely to be grudging and uneven, he said.

The outlook is overcast with the pandemic, he said, adding that MPC remains committed to its primary mandate of price stability, numerically defined as 4% with a tolerance band of +/- 2% around it.

"Taking into account the outlook on growth and inflation and keeping in mind the inherent output costs of disinflation, it is pragmatic to envisage a glidepath along which the MPC can steer the path of inflation into the future," Patra said while speaking at the Financial Markets Summit of the Confederation of Indian Industry, Mumbai today, 16 September 2021.

Powered by Capital Market - Live News