The governor of the Reserve Bank of India, the country’s central bank, in its recent statement, brought up the need to go see further than the subdued information regarding inflation that were just released recently. The central bank opted instead to focus their attention on the core inflation trends which eliminate food and fuel price instability.
Urjit Patel, RBI’s current governor, said in an interview with a news channel that the fall vegetable prices experienced recently could be somehow fleeting.
The downward turn of food prices eased the consumer inflation rate of India in the year leading to January, down 3.17 percent, missing the 4 percent medium-term target of the Reserve Bank of India.
Although consumer inflation eased, core inflation surged to about 5.1 percent as price pressures in the broader economy further build up.
What’s more, Patel’s remarks on the economic growth of India lean on the positive as he iterated how Asia’s third-largest economy hobbles itself back to vigor following the decision made by the country’s prime minister Narenda Modi to proscribe old 500- and 1,000-rupee banknotes, moping out 86 percent of India’s currency circulation at once.
The central bank governor also pushed for the sustenance of globalization amidst the high probability of open trades to change to a protectionist stance with the US government under President Donald Trump.
"Almost everyone agrees that the impact is going to be a sharp 'V', that we would have a downgrade of growth for a short period of time," the governor told the television network in an interview. "However, the remonetization has happened at a fast pace and that was part of the plan."
After slashing its economic growth forecast for the current fiscal year from 7.1 percent previously to 6.9 percent, the Reserve Bank of India suddenly upgraded estimates to 7.4 percent for the current fiscal year until the next.
Trashing 86 percent of the currency in circulation does have benefits, according to Patel, but it might take some time before the said benefits can be fully enjoyed by India and a lot of work needs to be done to make sure that these benefits are not only for the near term.
The governor also said in the interview that growth rates that were easily sustained are hard to foretell; this served as his answer when asked if India could reach a 9 percent GDP growth. The governor also iterated that the 7.5 percent growth rate they are currently aiming at is not something to frustrate the market.
"Now how much higher than 7.5 that we are achieving so far is difficult to say. But the fact is we need to grow at some point faster than we are now," Patel said. "I think 7.5 per cent growth rate is not something to be disappointed about."
The Monetary Policy Committee, composed of six members headed by RBI Governor Urjit Patel, kept its interest rates untouched for the second consecutive time at 6.25 percent. Also during the policy meeting held last week, the central bank committee changed its policy standpoint from previously being ‘accommodative’ to ‘neutral’.
Flexibility to cut, raise, or hold rates is offered by the neutral stance in comparison to the accommodative as inflation is becoming more in focus. "The best way that central bank can support growth on a durable basis is to ensure inflation is low, stable, there is financial stability and that is the role the central bank plays. Very few countries grow at high growth rate if inflation is high and volatile. So, I think we are doing our bit to support higher growth rate, but on a durable basis," Patel added.
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