Market

Easing of inflation provides RBI space to support growth

The trajectory of inflation is sliding more favourable than anticipated, raising hopes that normalisation of ultra-loose policy may be pushed back than previously thought, according to a Reserve Bank of India analysis.

The RBI in its state of the economy report said that prospects for the economy achieving `escape velocity’ are brightening.

“As pandemic scars heal and supply conditions are restored with productivity gains, a sustained easing of core inflation can be expected, which will reinforce the growth-supportive stance of monetary policy,” said the RBI article, prepared by its economic wing led by deputy governor Michael D Patra.

The Consumer Price Index for August eased to 5.30% from 5.59%, vindicating the Monetary Policy Committee’s call for treating the May price shock as transitory and looking through it.

The MPC at its last meeting voted in favour of continuing with accommodative policy despite price pressure as revival of the economy became its guiding principle. The vote was however not unanimous with one of its members Jayanth R Varma against it.

In the August policy, RBI had projected CPI inflation at 5.9% in September quarter, 5.3% in December quarter and 5.8 per cent in March 2020 quarter.

“Prospects are brightening for the economy achieving escape velocity from the pandemic as the second wave wanes and preparedness for future remains on war alert status,” the central bank paper now said.

The industrial production, which is nearing its pre-pandemic levels, is setting the stage for a rebound in industrial activity over the rest of the year. The July 2021 index was just 0.3% below its level in July 2019 with mining and electricity generation having already exceeded their levels in July 2019.

The silver lining came in the form of the services sector, which surged to a 18-month high on new orders placed with service providers, stemming from greater consumer footfalls, reopening of several firms and aggressive advertising.

The monetary policy maker has been saying that its action will be geared towards addressing the immediate concerns rather than adopting stabilization policies, which it said “operate with long and variable lags”.

“Time-consistent policy actions that fit the prevailing conditions when they impact the economy is key,” the article said.

RBI Governor Shaktikanta Das has been vocal in favour of policy support with a focus on revival. “Sustenance of growth is indeed the most desirable and judicious policy option at this moment,” he had said during the last policy meeting.

Most Related Links :
Business News Governmental News Finance News

Need Your Help Today. Your $1 can change life.

[charitable_donation_form campaign_id=57167]

Source link

Back to top button