Point Is To Raise Growth Without Inflation

To move to a higher growth trajectory without raising the inflation rate, investment demand needs a boost

- RK Pattnaik

The Monetary Policy Committee (MPC) at its meeting on Thursday unanimously resolved to keep the policy repo rate unchanged at 5.15 per cent. In line with market expectations, at its sixth and last bi-monthly for the financial year, it was resolved that the accommodative stance would continue to revive growth with the inflation rate at the targeted level of 4 per cent, +/- 2 per cent. Thus, the monetary policy has run its full course for the current fiscal with a policy repo rate reduction by 110 basis points or bps (135 bps including the February 2019 rate reduction). The question in this context is: has the front-loading approach of rate reduction, coupled with the accommodative stance, been helpful in activating the desired non-inflationary growth trajectory?

The Indian economy has been witnessing a weakening real economic growth measured in terms of GDP at constant prices (base year 2011-12), with accelerating retail inflation measured in terms of Consumer Price Index (Combined). In the December 2019 print, retail inflation was at 7.35 per cent on a year-on-year basis with a high food inflation component of 12.2 per cent.

Core inflation (excluding food and fuel) was higher at 3.8 per cent in December 2019 than that of 3.4 per cent in October 2019. Household inflation expectations, as evident from the January 2020 round of the RBI survey, declined by 60 bps and 70 basis points, respectively, for a three-month and one-year horizon.

Economic projections