Supply-side inflation pressures in core sectors will need more policy responses: Shashanka Bhide, Member of MPC

Supply-side price pressures in crucial sectors such as oil will require more coordinated policy responses, especially since the advent of the military conflict in West Asia, Shashanka Bhide, a member of the Reserve Bank of India‘s (RBI) Monetary Policy Committee (MPC), tells ET’s Bhaskar Dutta. According to Bhide, upside risks to inflation would be a factor considered for future policy decisions. Edited excerpts:

In the minutes of the latest MPC meeting, you have warned of the vulnerability of core inflation to shocks in petroleum fuel prices. Does the backdrop of fresh geopolitical tensions exert pressure on the MPC to signal tight monetary policy for longer?

Supply-side price pressures in crucial sectors such as oil will require more concerted policy response. Upside risks, which may not be short term, would be a factor in monetary policy actions. You have flagged concerns from uneven distribution of rainfall. If the rabi season weather outcomes are not in line with expectations, would more rate hikes be necessary to control inflation?
The concern would be on the output front that may have implications to prices. High rate of food inflation, if it is broad based, there would be a concern in terms of implications to overall inflation. Trade policy options, distribution from stocks would limit the impact of domestic supply disruptions. Monetary policy actions alone would not be the best option unless there are more generalised inflation pressures.

You have mentioned that the growth pattern continues to be uneven across sectors. How would the MPC balance out the need to create growth-conducive conditions while battling inflation?
There is a need to accelerate growth across the economy. Weak exports are a drag currently. Consumption growth is also moderate. Keeping the inflation at a low level will help achieve the higher growth momentum. Focus on maintaining price stability is important at this juncture to achieve sustained growth to balance the weak external demand.

Incomplete transmission of rate hikes remains a key aspect emphasised by the MPC. Does this translate into the need for banks to complete the pass-through of rate hikes via deposits and loans or is the MPC also concerned about the transmission in financial markets?
I am more concerned about the overall impact on demand conditions, which would result from the lending and deposit rates. Given the unexpectedly sharp jumps in inflation in July and August, is there a risk of household inflation expectations becoming un-anchored?
While the consumer sentiments appear to have been affected by the July-August inflation, its impact on a year-ahead expectations of one-year ahead inflation outlook has not been adverse. In this sense, the present episode of price spike has not affected inflation expectations negatively.