Tribune News Service
New Delhi, December 21
Come February, equated monthly instalments (EMIs) of loans could become even more costly as a majority of members of the Reserve Bank of India’s Monetary Policy Committee (MPC), which determines the benchmark lending rates, including its chief Shaktikanta Das, believe there is still “stickiness in core inflation”.
Costly policy error
In a tightening cycle, a premature pause in monetary policy action would be a costly policy error — Shaktikanta Das, RBI Governor
In order to contain the build-up in underlying inflationary pressures, further calibrated monetary policy action is required to strengthen the medium-term growth prospects of the Indian economy, said Das in the minutes of the last MPC meeting, which on December 7 recommended a 35 basis point increase in the repo rate.
“In a tightening cycle, a premature pause in monetary policy action would be a costly policy error. Given the uncertain outlook, it may engender a situation where we may find ourselves striving to do a catch-up through stronger policy actions in the subsequent meetings to ward-off accentuated inflationary pressures,” Das was quoted as stating in the minutes of the MPC meeting.
The sole dissent came from MPC member Jayanth Varma, who said during the pandemic, exports and government spending were the two growth engines that counteracted the headwinds confronting the Indian economy. Of these, the global slowdown has already led to the export growth engine grinding to a halt. Fiscal constraints limit the ability of government spending to hold up the economy on its own. Private investment is unlikely to be able to pick up the slack.
“That leaves only private consumption which has remained buoyant, but it remains to be seen how much of this is due to pent-up demand which could dissipate over the coming months. All of this means that economic growth is now extremely fragile and definitely not robust enough to withstand excessive monetary tightening,” he said.
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