Hopes of a rate cut recede as Shaktikanta Das flags high inflation risks1 min read . Updated: 07 Jan 2020, 11:38 PM IST
- At an event in Mumbai, Das pointed to the need for structural reforms, especially in the area of agriculture marketing
- MPC minutes show the central bank expects uncertainty in inflation outlook over the next few months
Mumbai: Reserve Bank of India governor Shaktikanta Das Tuesday said persistently high inflation hurts an economy’s allocative efficiency and impedes growth, dampening hopes of any immediate interest rate cut.
In his opening remarks at the Suresh Tendulkar Memorial lecture on the “Journey towards inclusive growth in India", Das pointed to the need for structural reforms, especially in the area of agriculture marketing.
The governor’s comment comes in the wake of hardening domestic inflation and rising crude oil price, and ahead of the February meeting of RBI’s monetary policy committee (MPC). In a surprise move, MPC left the rates unchanged in its December policy, awaiting a full pass-through of previous rate cuts. The move was prompted by a spike in headline inflation above the 4% medium-term target in October, while growth fell to a six-year low of 4.5% in the September quarter.
MPC had projected inflation in the second half of this fiscal at 4.7-5.1% and 3.8-4% for the first half of 2020-21; however, the consumer price inflation for November overshot these estimates to hit 5.54%. Minutes of MPC showed that RBI expects uncertainty in inflation outlook over the next few months, albeit expecting it to reverse by the fourth quarter of this fiscal.
In his speech, Das stressed the need to improve the supply chain, which could become a major channel for promoting inclusive growth. This, he said, could increase the share of farmers in retail prices paid by consumers. He added that RBI was reviewing priority sector lending norms, keeping in view the changing needs of the economy and to make these norms more inclusive.
Das added that high growth with financial stability augurs well for inclusive growth and can aid the process of wealth creation. Higher growth also improves the tax-GDP ratio, which in turn enhances the resources available with the government to undertake social and infrastructure expenditure, he said.
India’s GDP growth during this fiscal is expected to be 5% as against 6.8% a year ago, according to the first advance estimates released by the statistics ministry on Tuesday. RBI had also projected GDP growth at 5% for the current financial year, down from 6.1% earlier. The decline has been mainly on account of a deceleration in manufacturing sector growth, which is expected to fall to 2% in 2019-20 from 6.2% in the previous fiscal.