India is probably a positive outlier in the world hobbled with economic challenges, offering Mint Road the opportunity to further consolidate its war on inflation that has been restrained over the past few quarters from leaping. However, risks to price stability have not entirely receded into the background, said RBI Governor Shaktikanta Das, after the first policy review meeting in the new fiscal year.
Global Headwinds
There are likely spillovers from global developments such as high public debt in developed markets and an uncomfortable increase in commodity prices, including that of crude oil, which climbed $10 a barrel from the last review meeting in February on uncertain geopolitics and supply constraints.
“Two years ago, around this time, the elephant in the room was inflation,” said Das. “The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis.”
While the Monetary Policy Committee (MPC) did not explicitly mention the global interest rate scenario where the Federal Reserve Chairman Jerome Powell was cautious about easing too early, it echoed the sentiment that easing at this juncture could undo the gains made.
“As the central banks navigate the last mile of disinflation, financial markets are responding to changing perceptions on the timing and pace of monetary policy trajectories,” the MPC said in its statement.
Monetary policy must continue to be actively disinflationary to align inflation to the target of 4% on a durable basis, Das said. An ET poll of 14 respondents had said the MPC would keep the repo rate unchanged at 6.5%.
“The undercurrents that face the RBI MPC are similar to the US Fed,” said Radhika Rao, economist at DBS Group.
