Monday, 30th October 2017

E- paper

Inflation behind interest rate status quo

Earlier this month, the interest rate setting body had left the repo rate unchanged at 5.15% because of firm inflation

  • Published 21.02.20, 12:57 AM
  • Updated 21.02.20, 12:57 AM
  • a min read
  •  
Janak Raj, executive director, RBI, said while the current low growth is the outcome of deficient demand, high inflation is on account of a supply shock, both of which pose a challenge to monetary policy. (Shutterstock)

Members of the RBI’s monetary policy committee (MPC) remained cautious about the growth prospects of the domestic economy even as they felt that there was space available to reduce interest rates once inflation softens.

Earlier this month, the interest rate setting body had left the repo rate unchanged at 5.15 per cent because of firm inflation. Minutes of the meeting that were released on Thursday showed the members pointing out that though some green shoots are seen, it is still early to say that there is a turnaround.

According to deputy governor Michael Patra, while economic activity remains weak and there are indications of the momentum of growth stabilising, they are far from gaining economy-wide traction.

He pointed out that in some sectors, the slowdown is deep, and activity is stalled by a sizable slack in demand. Moreover, high frequency indicators are not offering definitive evidence yet that the downturn was over.

On the other hand, Janak Raj, executive director, RBI, said while the current low growth is the outcome of deficient demand, high inflation is on account of a supply shock, both of which pose a challenge to monetary policy.