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MPC pitches for close coordination with govt to address growth challenges

Reserve Bank of India (RBI) governor Shaktikanta Das

Reserve Bank of India (RBI) governor Shaktikanta Das cautioned about several uncertainties clouding the growth-inflation outlook, and called for close coordination between measures taken by the central bank and the government to address the current slowdown, minutes of the Monetary Policy Committee (MPC) released on Thursday showed.

All six members of the MPC had voted in favour of the pause in the December policy review meeting, leaving the repo rate unchanged at 5.15%. Other MPC members include Chetan Ghate, Pami Dua, Ravindra Dholakia, RBI executive director Micheal Patra and RBI deputy governor BP Kanungo.

The repo rate was lowered by 135 basis points in five back-to-back cuts between February and October. The MPC also decided to continue with the accommodative stance as there was room for rate cuts going ahead, but it would also monitor inflation data in coming months to get more clarity on movement in prices.

On food Inflation and particularly the surge in onion prices, Das said the surge in food inflation in last three months, driven up by a spike in onion and other vegetable prices, could be transitory. “It is likely to reverse gradually as late kharif output comes to the market, ” Das said during the MPC meet.

Das also said there is a need for greater clarity as to how the overall food inflation path is going to evolve, as there is some uncertainty about the outlook of prices of certain non-vegetable food items such as cereals, pulses, milk and sugar. It is also not clear at this stage as to how the recent increase in telecom charges will play out even as CPI inflation, excluding food and fuel, has moderated.

Das said while improved monetary transmission and a quick resolution of global trade tensions could push the growth above the projected trajectory, a delay in revival of domestic demand, a further slowdown in global economic activity and geopolitical tensions could pull it down below the projected path. Acknowledging that the impact of recent counter-cyclical measures taken by the government is playing out, he also said “The next Budget is due for presentation in about two months and it will provide greater clarity about measures that the government may initiate. It is imperative that monetary and fiscal policies work in close coordination.”

While there is policy space for a future rate reduction, the cuts need to be appropriately timed to ensure optimal impact, Das said. He mentioned that overall liquidity in the system remains in sizable surplus.

Source: Financial Express