RBI monetary policy: Tolerating inflation to give growth a chance

The key message from the December meeting is that monetary policy remains fully geared towards growth

Two words encapsulate the outcome of the RBI’s December policy meeting: downplay and stealth.

The RBI downplayed both the growth recovery and the inflation risks. On growth, even though GDP has reached its pre-pandemic level, the RBI stressed that this is not yet durable. Private consumption and contact-intensive services such as trade, transport and hotels remain below their pre-pandemic levels, private investment remains sluggish and the RBI expects the output gap may take several years to close.

The RBI also downplayed the inflation risks. Its projection that CPI inflation will rise to a peak of 5.7% YoY in Q4FY22, from