Reserve Bank of India (RBI) Deputy Governor Michael D. Patra on September 16 said that the economic recovery is on track as reflected in the trend of production and order book.
“The RBI’s growth target of 9.5% for the full year is achievable,” he said in an online address at the CII Summit on Financial Markets.
Highlighting that the current inflationary pressures were largely driven by supply shocks, with contribution to inflation arising from a narrow set of goods such as edible oil, LPG and petroleum products, the RBI deputy governor warned that there will be no change in retail prices. Incomplete pass-through of imported price pressures and rising labor costs in the organized sector will lend some tail risk to the inflation trajectory.
“MPC is strongly committed to price stability, RBI envisages a glide-path closer to the target of 5.7% or less printing CPI inflation in the current year, below 5% in 2022-23 and 4% by 2023 is- 24,” said Dr. Patra.
Underlining the importance of flexible inflation targeting (FIT) framework as RBI’s monetary policy regime, he said that the flexibility provided by the monetary policy framework as well as the smart decision helped the economy recover and help it recover from the pandemic. helped.
He said favorable financial conditions arising out of monetary policy helped revive the economy.
Dr. Patra suggested that due to the broad financial and monetary support provided over the long term, global financial markets are now out of sync with the real economy.
“Under these circumstances, monetary policy stances and actions are varying widely and this in itself is providing uncertainty in a high-wire situation,” he said.
He said the economic rebound from the second wave was being supported by a monetary policy stance of ‘as long as necessary’, which was reflected in adequate liquidity in the system.
The Deputy Governor clarified that the announcement of a graduation time path for Variable Rate Reverse Repo (VRRR) auctions cannot be construed as a liquidity tightening measure,
“RBI will remain in surplus mode and the liquidity management framework will continue in absorption mode,” he said.
“In view of weak credit channel of monetary transmission, RBI is committed to provide easy access to finance to corporate and government at low interest rates.
“This is facilitated by an asymmetric adjustment in the reverse repo rate relative to the repo rate, thus employing the LAF corridor as an instrument of policy by running in absorption mode,” he said.
Stating that the MPC recently voted to keep the policy rate unchanged and stance liberal, he said, “Time will tell if the call is right. The data arrival confirms the MPC’s stance, has eased into the inflation tolerance band, and increased in Q1 in almost perfect alignment with the RBI’s forecast.
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