MPC Minutes: Declining Inflation Gave Committee Enough Comfort To Remain Growth-Supportive

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India’s six-member Monetary Policy Committee found enough comfort in the recent fall in inflation to remain explicitly growth-supportive as the economy recovers from the Covid-19 crisis. Committee members, however, warned of inflation pressures that may emerge from rising commodity prices with some of them calling for a cut in indirect taxes on fuel products.

At its meeting in February, the MPC kept the repo rate unchanged at 4%. It also maintained its forward guidance, suggesting that it will remain accommodative at least into next financial year to revive growth on a durable basis.

Key comments by MPC members are listed below:

Shaktikanta Das, RBI governor

  • Given the sharp moderation in inflation along with a stable near-term outlook, monetary policy needs to continue with the accommodative stance to ensure that the recovery gains greater traction and becomes broad-based.
  • CPI inflation, excluding food and fuel, remains elevated at 5.5%.
  • Proactive supply-side measures, particularly in enabling a calibrated unwinding of high indirect taxes on petrol and diesel — in a coordinated manner by centre and states — are critical to contain further build-up of cost-pressures in the economy.
  • The commitment to keep accommodative stance “during the current financial year and into the next financial year” is reflective of a time-based guidance; whereas on the other hand, the expression “to revive growth on a durable basis” characterises a state-based guidance; that is, guidance contingent on the state of the economy.
  • Market participants also need to factor in the forward guidance with respect to the two-phase normalisation of the cash reserve ratio which opens up space for a variety of market operations to inject additional liquidity through instruments like open market operations, among others.

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