Minutes of the Monetary Policy Committee released quote RBIGovernor Shaktikanta Das saying that the ongoing transmission of past monetarypolicy actions will help ease financial conditions.
The statement assumes significance as past rate cuttransmission will provide lower interest rates which, in effect, is expected totrigger consumption and economic revival.
Besides, the Governor said that there exists space forfuture rate cuts if the inflation evolves in line with the expectations.
"This space needs to be used judiciously to supportrecovery in growth," he said.
Das said that monetary policy at this stage has to provideadequate support to ensure a robust revival of the economy from the devastatingeffects of Covid-19, while at the same time, ensuring that any persistence ofelevated inflation does not lead to unanchoring of inflation expectations.
"With the supply side disruptions that are seen todrive the current inflationary pressures likely to be transient and wane out inmonths ahead as economy normalises, there is merit in looking through thecurrent high levels of inflation and persevere with the accommodative stancefor monetary policy as long as necessary to revive growth on a durablebasis," he said.
"Moreover, taking into account the projected moderationin inflation and the large output loss, I vote to keep the policy rateunchanged at present and continue with the accommodative stance, during thecurrent financial year and into the next financial year, at the least. Thiswould help to reduce uncertainty and market volatility. This would also enhanceconfidence in the monetary policy resolve to support the growth recoveryprocess while ensuring that inflation remains within the target," headded.
The penultimate meet of the MPC in 2020 was conducted fromOctober 7 to 9.
The MPC decided to maintain the repo -- or short-termlending -- rate for commercial banks at 4 per cent on the back of persistentlyhigh inflation, fanned in part due to supply side disruptions along withseasonal factors.
The meeting was attended by all the members, includingShashanka Bhide, Ashima Goyal, Jayanth R. Varma, Mridul K. Saggar, and MichaelDebabrata Patra.
Besides, other members cited the need support the economicrecovery.
In the meeting, RBI Deputy Governor Patra said that underthese conditions, it is essential for monetary policy to remain accommodativeand opportunistically exploit the headroom that opens up when inflation recedes,as it is projected in the second half of 2020-21.
"Three aspects need to be emphasized. First, it isimportant to separate false starts from durable growth drivers. In thiscontext, all efforts need to be trained on the revival of investment. Second,in the evolving situation in which monetary policy is committed to anaccommodative stance, it is necessary to monitor inflation dynamics closely forsigns of generalization and persistence," he said.
"For this purpose, all indicators of aggregate demand,including monetary and credit aggregates, warrant continuous examination forinflation impulses. Third, with unprecedented contractions in economic activityand elevated inflation posing a razor's edge trade-off fraught withuncertainty, forward guidance has to be clear and decisive."
Regarding inflation, Saggar said that inflation is currentlyabove the upper tolerance band, it is not monetary in nature.
He pointed out supply disruption in food, increase in taxeson fuel and liquor, and surge in gold prices "catalysed by risk-off"has lifted inflation.
"In my view, headline inflation should start softeningfrom October. Apart from favourable base effects, the unlocking has pickedspeed and would significantly reduce supply chain bottlenecks causing bothagriculture and non-agricultural prices to correct," he said.
"Monsoon risks to inflation have dissipated. Cumulativerainfall has been 9 per cent above long period average with its temporal andspatial distribution satisfactory. Area sown under Kharif has expanded by 4.8per cent. With resumption of businesses by small poultry, high prices inprotein items should witness some correction."
On his part, Bhide said that there are clearly uncertaintiesfacing the growth and inflation projections.
There is also uncertainty over the speed with which theCovid-19 pandemic is brought under control, which also affects growth andinflation scenarios in the next 2-3 quarters, he said.
"Towards the end of Q2, there are indications ofrevival of the economy after the relaxation of restrictions on transportationand businesses across the country," Bhide said.
"As supply chains adapt to the new conditions, recoveryis expected to be stronger and sustained. To achieve this outcome, anaccommodative monetary policy is needed at this juncture."
As is visible, the entire financial machinery is working torestore the Indian economy on the path of revival and prosperity, even thoughthe leaders have a tough task on their hands.