By Anirban Nag
The economic disruption caused by the Covid-19 pandemic has brought growth concerns to the top of Indian monetary policymakers’ priority list, and relegated the inflation goal to a secondary position, minutes of their meeting show.
The pivot for growth boosts the odds that interest rates will stay lower for longer to ensure the economy’s recovery takes hold. The six-member Monetary Policy Committee earlier this month left the benchmark repurchase rate unchanged for a sixth straight meeting, even as the Reserve Bank of India expanded its version of the quantitative easing program to spur economic activity.
Minutes from the MPC’s June 2-4 meeting released on Friday showed that policy makers agreed that the pandemic’s second wave has necessitated urgent policy interventions.
“The second wave of Covid-19 has altered the near-term outlook, and policy support from all sides — fiscal, monetary and sectoral — is required to nurture recovery and expedite return to normalcy,” Governor Shaktikanta Das was cited as saying in the minutes. “The dent on economic activity due to the second wave of the virus has necessitated the continuation of monetary measures to support the process of economic recovery to make it durable.”
The RBI sees Asia’s third-largest economy expanding 9.5 per cent in the year that began April 1, slower than the 10.5 per cent pace it had forecast before a second deadly outbreak of coronavirus infections. The central bank expects inflation to end up at 5.1 per cent this year, toward the upper end of its 2-6 per cent target band.
The MPC is convinced that the current gains in price growth — fanned by supply-side problems, a rise in fuel taxes and higher commodity prices — don’t warrant a withdrawal of the easy measures put in place since last year.
Here are some excerpts from the minutes: