June MPC minutes show committee to look through inflation says Barclays

20 Jun , 2021 By : Kanchan Joshi

MUMBAI : The minutes of the monetary policy committee (MPC) meeting released on Friday show that committee members reiterated that they would look through the current inflation surge and a few members stressed the need to remain vigilant over elevated global commodity prices and rising inflation expectations, Barclays said in a report.

The Reserve Bank of India (RBI) released the minutes of its June policy meeting at which the MPC kept rates on hold, even as it increased inflation forecasts and acknowledged downside risks to growth.

“The minutes largely reflected the tone of policy statement, where stress was laid on both reviving and sustaining growth recovery. On growth, there was clear agreement that economic activity remains below potential, but that recovery is slowly under way," the Barclays report said.

It added that members felt that the economic impact resulting from the second wave of covid-19 was less than from the summer lockdown in 2020 and stressed the need for support from monetary and fiscal authorities to help growth gain traction.

Governor Shaktikanta Das emphasized the forward guidance of the MPC, which included a commitment to revive and sustain growth – we read this as an unambiguous commitment of policymakers to support a growth revival, it said.

“On inflation, members largely acknowledged the predominantly supply-side nature of the current bout of inflation, and consequently saw no need for monetary policy action, at this point in time," the report said.

However, MPC member Michael Patra flagged elevated global commodity prices as an upside risk to the inflation trajectory, and suggested tax cuts to mitigate the pass-through to retail prices. Similarly, MPC member Mridul Saggar cautioned that a further rise in inflation expectations could warrant some policy response.

“These comments gain salience in the context of higher retail fuel prices in the past two weeks to record highs in several states. Data released post June policy meeting showed an increase in pricing pressure," it said, adding that inflation measured by the wholesale price index (WPI) at 12.9%, is at its highest since 1992, while retail inflation surprised significantly to the upside in May, breaching he RBI’s inflation target band after a gap of five months.