Inflation will rise further, says RBI

‘Farm loan waiver, pay hikes to impact’

Updated - November 20, 2017 10:22 pm IST - Mumbai

Sharp scrutiny: The MPC views kharif production estimates
and the GST roll-out as transitory setbacks, says Mr. Patra

Sharp scrutiny: The MPC views kharif production estimates and the GST roll-out as transitory setbacks, says Mr. Patra

Retail inflation, which has gone up by more than 200 basis points since June, is expected to rise further in the remaining part of the financial year, M.D. Patra, executive director, Reserve Bank of India, said in an October 27 speech, the details of which were put out by the central bank on Monday.

“In the MPC’s [monetary policy committee] assessment, inflation will likely rise from current levels in the rest of the year, with farm loan waivers and the implementation of pay and allowance revisions by States a la the Centre, posing upside risks,” Mr. Patra said in his speech on the first anniversary of formation of the monetary policy committee. Consumer price based inflation accelerated to 3.58% in October, its fastest pace in seven months.

First anniversary

The October monetary policy of the RBI marks the first year of the monetary policy committee from October 2016, when a six-member committee began deciding on interest rates — a departure from the earlier practice of the RBI governor taking the final call.

“The monetary policy statement of October 2017 was framed in quite a dramatic setting,” Mr. Patra said. “Even as growth broadened globally, it slowed to below 6% for the second quarter in a row in India in April-June. At this rate, India was still among the fastest-growing large economies of the world, but the blow from the growth print was significant enough to set off a chorus of alarm,” he said. The MPC had decided to hold the repo rate at 6% while maintaining the neutral stance.

Mr. Patra said the committtee regarded the first estimates of kharif production (lower than last year’s level and this year’s target) and the GST roll-out as early, but transitory, setbacks.

He said it believed that agricultural activity would improve hereon and termed business optimism expressed by firms on prospects for the October-December quarter as reassuring. “Relative to its August assessment, the MPC lowered its growth forecast by 60 basis points which, in a rough and ready sense, measures the net lagged impact of shocks such as demonetisation and the GST,” he added.

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