The six-member Monetary Policy Committee of the Reserve Bank of India (RBI), which unanimously decided at its meeting between April 6 and 8, 2022 to maintain the status quo of the repo rate at 4 percent, was also united in the fact that inflation pressure must be controlled.
According to the minutes of the committee’s meeting released today by the central bank, all members from Governor Shaktikanta Das and Vice Governor Michael Patra to Executive Director Mridul Saggar and economist Ashima Goyal have expressed concern about rising prices, and marked this as the main focus area .
Due to rising prices, the RBI also raised its current fiscal year retail inflation target to 5.7 percent on the back of rising world prices amid ongoing geopolitical tensions, although it expected grain and legume prices to decline on the prospects of a good winter harvest.
Let’s look at some of the key quotes from the members of the monetary policy committee on inflation during their deliberations in the meeting.
RBI Governor Shaktikanta Das†
While risks to domestic growth require continued accommodative monetary policy, inflationary pressures require monetary policy action. The circumstances justify prioritizing inflation and anchoring inflation expectations in the order of objectives to ensure macroeconomic and financial stability, taking into account the ongoing recovery in growth.
RBI Deputy Governor Michael Patra†
Supply disruptions, rising commodity prices and the ensuing turbulence in the financial markets are no more telling about fears about the shape of future inflation – the worst fears are already becoming reality. Instead, they obscure the prospects for growth. Macroeconomic conditions are most difficult for developing countries, with acute shortages of even essentials, alongside rising prices. On the one hand, the cost of foreign currency debt is rising for EMEs, and on the other, they are being forced to pump up foreign exchange reserves to keep exchange rates stable. Higher commodity prices could also complicate the situation for governments that have sought to mitigate the impact of the pandemic by offering food and energy subsidies to households.
RBI Executive Director Mridul Saggar†
The contingent risk has materialized and calls for policy changes. We are witnessing a deep-seated conflict. While it remains unclear how long it could take, it seems that even with de-escalation, supply chain disruption and high prices of energy, agro-products and minerals and metals could last at least a year.
The war in Ukraine lasts more than a month, uncertainties persist, oil prices are volatile, supply disruptions will increase inflation but also reduce demand; the continued high impact of Covid-19 in major countries will have similar effects. The typical response of households to inflationary supply shocks is to reduce consumption. In addition, a declining wage share will also decrease their demand.
Even before the Russia-Ukraine war, monetary policy’s response to mounting inflationary pressures in developed countries had begun with raising policy rates and measures to tighten the easy liquidity conditions created to mitigate the adverse effects of the Covid-19 pandemic. manage the pandemic. Monetary policy tightening in advanced countries is expected to continue to lower inflation, but it would also have a significant impact on trade and investment flows for developing countries.