As a result of high inflation, which also breached the 6 per cent band in between, the RBI has been maintaining a status quo on rates for over a year now and calls for higher attention to its core mandate of price rise are growing.
The Reserve Bank is "quite optimistic" about its 9.5 percent GDP growth estimate coming true for FY22, and will take steps to "gradually move" for a cool off in headline inflation to its 4 percent target, Governor Shaktikanta Das said on Thursday.
The RBI had decided to use the 2 percentage point cushion to keep the inflation within the 2-6 per cent target band as a result of the pandemic to push growth, Das said, adding that the Monetary Policy Committee (MPC) will take a call on continuing with the accommodative stance.
As a result of high inflation, which also breached the 6 per cent band in between, the RBI has been maintaining a status quo on rates for over a year now and calls for higher attention to its core mandate of price rise are growing.
The last MPC meet saw one of the six members dissenting on the stance, and asking for a rollback of the accommodative stance.
According to many watchers, the RBI will first shift the stance before a possible rollback of pandemic measures or eventually a rate hike.
Speaking at the event hosted by The Indian Express and Financial Times, the governor said fast moving indicators on the economy are "upbeat” after the reverses faced as a result of the second wave of the pandemic beginning in mid-April.
“Going forward, many of the fast moving indicators are looking upbeat. At this point of time our projection of 9.5 per cent growth for this financial year stands and I think it will hold good… At this point in time we are quite optimistic of the 9.5% growth we have projected for the current year,” Das said.
He said the growth will keep rising from a sequential perspective with every quarter, and expected the September quarter to be better than June. The only uncertainity is the possibility of a third wave, he said, adding that businesses and companies have not learnt how to deal with the impact of such disruptions.
Meanwhile, on inflation, he said the RBI does not expect a “sustained increase” beyond the 6 per cent number and some moderation as well going forward.
"…we are watchful, we are very serious about anchoring inflation expectations and anchoring the inflation around the target of 4 per cent going forward and we remain committed to anchor that, to achieve that over a period of time in a very non-disruptive manner," Das said.
"Going forward, our effort being an inflation targeting institution, will be to gradually move to 4 per cent (inflation) over a period of time. That timing has to be decided, today is not the time and we will take a call depending on the incoming numbers," he said.
This is the first time that the governor has explicitly spoken about the desire to get inflation back to the 4 percent target, which is the medium-term target set by the government.
He attributed the surge in inflation, which had stood at 5.7 per cent in July, on the supply side factors including the high commodity prices.
Pointing out that the high price of diesel and petrol at filling stations is among the factors pushing inflation, Das said the RBI is engaged with the government on such issues and also noted the government's measures to reduce prices of edible oils and pulses.
The RBI had decided to focus on growth by giving extra emphasis to it because if the growth gets completely decelerated, then it will pose huge long term challenges for the economy to revive.
"During the pandemic therefore, instead of the exact (inflation) target of 4 per cent, the MPC has decided to operate within the band of 2-6 per cent," Das said.
The RBI expects the headline inflation to be at an average of 5.7 per cent during FY22. On the growth front, Das said many fast moving indicators including 2 wheeler sales, passengers car sales, GST E-way bills, electricity consumption and tractor sales have shown an uptick, which make him optimistic.
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