RBI Has To See Momentum In Inflation Does Not Get Entrenched

According to the minutes of the latest monetary policy meeting, Shaktikanta Das, the governor of the Reserve Bank Of India (RBI) deliberated that monetary policy is geared towards supporting the economic recovery process. Although there is headroom for further monetary policy action, at this juncture it is important to keep the arsenal dry and use it judiciously. He noted that RBI should wait for some more time for the cumulative 250 basis points reduction in policy rate since February 2019 to seep into the financial system and further reduce interest rates and spreads.

Given the uncertain inflation outlook, the central bank has to remain watchful to see that the momentum in inflation does not get entrenched, which is also dependent on effective supply-side measures. As the economy continues to be in a fragile state, recovery in growth assumes primacy. It would be prudent at this stage to wait for a firmer assessment of the outlook for growth and inflation as the staggered opening of the economy progresses, supply bottlenecks ease and the price reporting pattern stabilises, he opined.

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