Economic recovery on track: Patra

Reserve Bank of India (RBI) deputy governor Michael D. Patra on September 16 said the economic recovery remained on track as reflected in the trend of the production and order books.

“RBI’s growth target of 9.5% for the full year is eminently 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 shock with contributions to inflation emanating from a narrow group of goods like edible oil, LPG and petroleum products, the RBI deputy governor warned that the incomplete pass-through of imported price pressures to retail prices and the rising staff costs in the organised sector would lend some tail risks to the inflation trajectory.

“With MPC remaining firmly committed to price stability, the RBI envisages a glide-path of CPI inflation printing at 5.7% or lower in the current year, to below 5% in 2022-23 and closer to the target of 4% by 2023-24,” Dr. Patra said.

Underscoring the importance of the flexible inflation targeting (FIT) framework as RBI’s monetary policy regime, he said the flexibility imparted by the monetary policy framework coupled with astute judgement healed the economy and helped it rebound from the pandemic.

He added that the congenial financial conditions engendered by monetary policy helped to revive the economy.

Dr. Patra suggested that global financial markets were now out of sync with the real economy, due to extensive fiscal and monetary support provided over a long period of time.

“Under these conditions, monetary policy stances and actions are diverging widely and this by itself is imparting uncertainty in a high-wire situation,” he added.

He said the economic rebound from the second wave was being supported by the monetary policy stance of ‘as long as necessary’ accommodation which was reflected in ample liquidity in the system.

The deputy governor clarified that the announcement of a graduated time path for variable rate reverse repo (VRRR) auctions could not be construed as a liquidity tightening measure,

“The RBI will remain in surplus mode and the liquidity management framework will continue in absorption mode,” he said.

“In the wake of weak credit channel of monetary transmission, RBI remains committed to provide easy access to finance to the corporate and government at low interest rates.

“This has been facilitated by an asymmetric adjustment to the reverse repo rate relative to the repo rate, thus employing the LAF corridor itself as an instrument of policy by running it in absorption mode,” he added.

Stating that the MPC recently voted to keep the policy rate unchanged and the stance as accommodative, he said, “Time will tell if the call is true. Data arrivals vindicate the MPC’s stance, with inflation having moderated into the tolerance band, and growth in the first quarter in almost perfect alignment with the RBI’s forecast.”