India holds interest rates; bets on growth despite inflation pressure
RBI panel hints at the imminent cycle of monetary easing after 18 months of inflation nursing
India’s money managers have kept the interest rate unchanged for the 18th month at 4%. In the first Monetary Policy Committee meeting of the new fiscal year this week, the Reserve Bank of India (RBI) signaled its willingness to watch the inflation trajectory that reigns above its own comfort level of 6% for some more time.
The sentiment seems to be that a rise in the lending rates to ease the inflationary pressure may delay the reversal of the slowing economic growth. That means it’s stuck with the balancing act of holding the interest rates at an unrealistically low level despite the galloping inflation.
Reduced corona worries
The meeting was held in the backdrop of easing the COVID-19 pandemic and geostrategic concerns following a flare-up of hostilities between the West and Russia over the invasion of Ukraine. India’s inflation pressures have further increased because of the racing crude prices as New Delhi imports 82% of the energy needs.
Interestingly, the Committee hinted at its changing perceptions by stating it would withdraw accommodation going ahead. The unanimity of the six-member panel’s decision, unlike the past few policy reviews, has caught the market’s attention. Even more, telling has been the monetary policy document’s mention of inflation ahead of growth in its outlook statement.
Consistency in sequencing
This is in contrast to the previous policy documents in which the commentary on growth preceded inflation. “Given the consistency in the sequencing of commentary seen in the past policy statements, this signals a
shift in the ordering of the MPC’s concerns,” writes Aditi Nayar, Chief Economist at ICRA Ltd., in a commentary in Business Standard. This could have been triggered by the Russia-Ukraine war that has added to inflationary pressures following the global commodity prices hike.
The focus shift from inflation to growth has registered well with analysts in general and they expect the
beginning of a policy cycle of monetary easing.
Image source: Investorssite.Com
Also Read:
Kremlin spokesperson concedes that Russia suffered'significant' losses
Russian troops completely withdrawn from northern Ukraine,UK says
