RBI able to overlook inflation for now due to lack of demand

As the Reserve Bank of India kept the lending rates and its accommodative although inflationary concerns continue, its Deputy Governor, Michael Patra said that the central bank has been able to look through the inflation scenario in recent times and focus on growth, due to the lack of demand pressure on inflation.

Interacting with the media post the Monetary Policy Committee meeting on Friday, he noted that currently the inflation is not persistent.

“Inflation will turn persistent when it is backed by demand pull. At the current stage, we find the demand very weak and there is no demand pull in the inflation formation. It is mostly on the supply side and therefore we have chosen to look through,” Patra said.

Demand-pull inflation refers to the scenario wherein the inflation rises on the back of rise in demand.

He, however, said that the apex bank is “very very vigilant” about demand pressures and will take the necessary steps when demand pressures start playing its role in the inflationary process.

The RBI has projected India’s retail inflation for the current financial year at 5.1 per cent.

For the first quarter, April-June, the retail inflation or the consumer price index (CPI) inflation has been estimated at 5.2 per cent, followed by 5.4 per cent, 4.7 per cent, and 5.3 in second, third and the fourth quarter, respectively, said RBI Governor Shaktikanta Das.

He said that the favourable base effects that brought about the moderation in headline inflation by 1.2 percentage points in April may persist through the first half of the year, conditioned by the progress of the monsoon and effective supply side interventions by the government.

“Upside risks to inflation emanate from persistence of the second wave and consequent restrictions on activity on a virtually pan-India basis,” Das said.

The central bank has retained its key short-term lending rates along with the growth-oriented accommodative stance during the second monetary policy review of FY22 on Friday.

The Monetary Policy Committee of the central bank voted to maintain the repo rate, or short-term lending rate, for commercial banks at 4 per cent.

–IANS

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