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Volume IconWhat is MPC member Jayant R Verma on inflation & economic challenges?

In a chat with Business Standard's Manojit Saha, external MPC member Jayant R Verma said that the country will have to tolerate a modest growth sacrifice now as the RBI fights inflation. Listen in

ImageManojit Saha New Delhi
Jayant R Verma

Jayant R Verma

Q1: In the MPC minutes that were out last week, you said RBI still needs to do a lot of catch-up. The repo rate has been hiked by more than 90 bps since May. How much of a hike in repo rate do you expect in 2022. 

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>Inflation has been rising faster than the repo rate
>Rate hike of 90 bps is large, but realised inflation has shot up by more than 100
>In term of inflation-adjusted policy rate, we have barely budged from April 2022
>The real policy rate is negative now 
>Considering the projected numbers for 2022-23, the repo rate is negative real  

Q2: When do you see the real rates becoming positive? 
>Part of the surge in inflation is due to the Ukraine situation and global headwinds
>If global environment stabilises, crude oil prices come down, large correction in metal prices is expected
>A good monsoon will bring down food prices and help bring down inflation
>Task of the RBI MPC becomes easier if inflation comes down

Q3: How much of a growth sacrifice you think is tolerable in the current situation?
>When the pandemic was wreaking havoc on the economy, recovery was the only focus area 
>Economic recovery is robust today
>We are at a point now where inflation itself is posing a threat to the recovery
>For consumer goods companies, inflation is a threat to demand 
>Income of people has not risen as much as inflation has
>MPC is right to prioritise inflation 

Q4: Some of the members have indicated that if MPC fails to meet its inflation mandate, which is to keep average inflation between 2% and 6% over three quarters – it is mainly due to the external factors, because 75% of rise in inflation since Feb is due to the war in Europe. Do you agree with that view? 
>Mandate given to the MPC was 4 to+/-2% and three quarters
>First leeway given to the MPC: It can deviate from the target and go to 5-6%
>Second leeway given to the MPC: A time window of three quarters to deal with eventualities 
>MPC should not chase excuses about its inflation mandate 
>The 2% leeway was given to MPC because of the uncertainities
>Bringing down inflation to 4% as quickly as possible should be the focus now

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First Published: Jun 30 2022 | 7:00 AM IST

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