MUMBAI: The growth momentum needs to be strengthened for a sustained revival of the economy and quick return to the pre-Covid trajectory, opined RBI governor Shaktikanta Das while pitching for a status quo on rates at the last meeting of the Monetary Policy Committee (MPC).
All the six members of the MPC had voted for keeping the policy repo rate unchanged at 4 per cent at the three-day meeting which began on February 3, citing similar reasons.
Das, according to the minutes of the meeting released by RBI on Monday, had said: “Growth, although uneven, is recovering and gathering momentum, and the outlook has improved significantly with the rollout of the vaccine programme in the country.”
“The growth momentum, however, needs to strengthen further for a sustained revival of the economy and for a quick return of the level of output to the pre-Covid trajectory,” he added.
Given the sharp moderation in inflation along with a stable near-term outlook, he said, the monetary policy needs to continue with the accommodative stance to ensure that the recovery gains greater traction and becomes broad-based.
The RBI kept the policy rate unchanged for the third time in a row in its last monetary policy review for 2020-21 on February 5.
The MPC, headed by the RBI governor, also decided to continue with the accommodative stance as long as necessary.
The RBI has been set a medium term target to keep retail inflation at 4 per cent with a bias of +/- 2 per cent on the either side.
The other members of the committee are Shashanka Bhide, senior advisor, National Council of Applied Economic Research, Delhi; Ashima Goyal, professor, IndirÂ Gandhi Institute of Development Research, Mumbai; Jayanth R Varma, professor, IIM-Ahmedabad; Mridul K Saggar, executive director, RBI; and Michael Debabrata Patra, deputy governor in charge of monetary policy.
Bhide, in his statement, said the MPC is committed to continuing with the accommodative stance as long as necessary — at least during the current financial year and into the next fiscal.
He said the stance is in consonance to revive growth on a durable basis and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.
“The current macroeconomic configuration and its expected future evolution as outlined above implies there is space for the MPC to continue to support the revival of the economy with inflation remaining in the target band. Therefore, I vote to maintain the status quo in policy rate and stance,” Goyal said in her statement.
Varma said these decisions are consistent with the forward guidance provided by the MPC in its last two meetings (October and December 2020).
“With both inflation and growth outcomes being well within the range of expectations of the MPC, and short term interest rates being within the corridor…The MPC must of course continue to be data driven and must continue to monitor future developments carefully,” he added.
Patra said overall, the near-term outlook for inflation appears less risky than the near-term challenges for growth which warrant continuing policy support, at least until the elusive engine of investment fires and consumption, the mainstay of aggregate demand in India, stabilises.
Saggar said the MPC’s call to hold policy rates despite inflation staying elevated above the upper tolerance level during H2 of 2020 was based on the assessment that inflation will recede going forward.
“…going forward, while efforts should continue to extend output expansion and close output gap, a necessary concomitant for monetary policy is to secure price stability.
“With headline inflation having already corrected as supply shocks have substantially faded, keeping inflation around the target is the best contribution monetary policy can make to fortify and sustain growth. In my statement, I have focussed more on risks than the baseline,” Saggar said.
The next meeting of the MPC is scheduled during April 5 to 7, 2021.
The minutes are published on the 14th day after every meeting of the MPC.