Will be vigilant on inflation, risks to growth, says RBI governor Urjit Patel
“Underlying the MPC decision was the fact that headline inflation has been sharper than anticipated, and has remained above the 4% target for six consecutive months,” Patel said.
The Reserve Bank of India (RBI) will remain cautious and vigilant on managing the risks to growth and inflation in the country, the central bank’s governor Urijit Patel told reporters on Wednesday after the monetary policy meeting.
Patel said the monetary policy committee (MPC) is committed to targeting inflation around 4%, and will be vigilant on how actual inflation unfolds.
The MPC hiked the RBI’s key interest rate by 25 basis points on Wednesday, to 6.25%. “Underlying the MPC decision was the fact that headline inflation has been sharper than anticipated, and has remained above the 4% target for six consecutive months,” Patel said, adding that the RBI had kept rates on hold earlier as “impulses of growth were nascent and taking root”. The economy has exhibited revival and the output gap has almost closed, according to Patel.
He said that manufacturing PMI for the month of May (purchasing managers’ index) has increased, and remains in an expansionary mode, on the back of new domestic orders and exports. The central bank expects robust investment activity even though there has been tightening of financial conditions in recent months.
The MPC sees a “boost in economy from the resolution of distressed sectors under the insolvency and bankruptcy code (IBC). It is in this context that the MPC decided to raise lending rates after a prolonged pause”, Patel said.
RBI Governor says forecast of normal monsoon for 2018-19 augurs well for agriculture sector.
On managing liquidity, Viral Acharya, a deputy central bank governor, said that the Reserve Bank of India will use appropriate instruments to manage liquidity as the surplus is likely to dip later this month.
RBI retains GDP growth projection at 7.4 per cent for 2018-19.
-- With agency inputs
