The Reserve Bank of India or RBI announced minutes of the monetary policy committee (MPC) meeting held on February 6 to 8, 2024. RBI Governor Shaktikanta Das stated that CPI inflation has fallen decisively from the heightened levels of last summer, led by steady and sustained disinflation in core, though there have been intermittent interruptions caused by adverse food price shocks. Inflation is expected to soften further to an average of 4.5 per cent in 2024-25 with a fleeting trough of 4 per cent in Q2.
MPC member Shashanka Bhide noted that Moderation in consumer level inflation rate, decline in commodity prices in the international markets impacting input costs for the domestic producers, and increased pace of government capex spending have offset the impact of adverse growth conditions. The recent broader high frequency indicators of economic activity such as non-food credit, PMIs for manufacturing and services, GST collections point to strong demand conditions.
Ashima Goyal stated that inflation has also come in below predictions and core inflation continues to soften, again indicating that output remains below capacity. Reforms and structural changes are reducing costs. Since growth is still robust and recent headline inflation has been near the upper tolerance band, we can wait a bit longer to ensure that inflation continues movement to the target despite any geopolitics related or other commodity price shocks.
Jayanth R. Varma noted that Inflation is projected to average 4.5% in 2024-25, and, therefore, the current policy rate of 6.5% translates into a real rate of 2%. A high real rate is required at this stage to drive inflation down to the target of 4%. It is true that economic growth is holding up well, but there is no evidence at all that the economy is overheating.
Rajiv Ranjan stated that growth is holding up better than expected, while the inflation prints in November and December crossed 5 per cent. Core inflation has shown marked and durable signs of disinflation that gives us comfort from monetary policy perspective, but upside risks remain from food inflation.
Michael Debabrata Patra felt that persisting food supply pressures are holding hostage the disinflation that has been led by the steady easing of core inflation. In the latest CPI print for December 2023, unfavourable base effects snuffed out a decline in the momentum of food inflation. As winter's seasonal price softening fades, however, demand-supply imbalances in the food category may show up again; they should not be allowed to negate the gains of monetary policy's restraint on core inflation.
Powered by Capital Market - Live News