“It is axiomatic that the path to high but sustainable inclusive growth has to be paved by price stability. Once this is realised, the trade-offs and dilemmas confronting the conduct of monetary policy fade away,” the central bank’s economic research department said in the monthly state of the economy report.
Citing the latest national accounts data and corporate results which showed that inflation is slowing down personal consumption expenditure, the central bank’s economic research wing backed the monetary policy decision to keep the rate unchanged and withdraw the accommodative stance.
“By keeping the policy rate unchanged, monetary policy has been effectively tightened in the near-term in terms of the real policy rate while maintaining a positive real rate four quarters ahead over which monetary policy is expected to work, given its lags,” the report said.
The RBI raised the repo rate by 250 basis points since May 2022 helping to steer the disinflationary process. The headline inflation measured by Consumer Price Index was 4.25% for May, as compared with the high of 7.8% in April last year.
The central bank aims to bring inflation down further to 4% while the dilemma of maintaining growth momentum versus managing inflation always keeps policy makers engaged.In his monetary policy statement, Governor Shaktikanta Das unequivocally said the central bank’s primary target is to bring down inflation to 4%. “Let me re-emphasise that headline inflation still remains above the target and being within the tolerance band is not enough. Our goal is to achieve the target of 4%,” he had said.RBI projected the headline inflation to remain above the target through 2023-24 and be at 5.1% for the whole fiscal. However, the core inflation remained stubbornly high over 6%, driven by services inflation and the prospect of sustained strong wage growth while concerns over the possibility of erratic monsoon pushing food prices up leading to higher CPI remain.
