MPC sees food inflation softening, minutes show

MPC sees food inflation softening, minutes show

PTI
RBI Governor Urjit Patel. File photo

The six-member monetary policy committee , which met for the first time earlier this month, justified its vote to cut the Reserve Bank of India’s policy rate citing a ‘real’ slowing in retail inflation and the need to support economic growth, the minutes of the MPC’s meeting show.The rate-setting committee’s members also expect the outlook for food inflation and economic growth to improve, according to the minutes released by the RBI on Tuesday, the fourteenth day after the meeting.Growth to quicken“The Committee expects that the strong improvement in sowing, along with supply management measures, will improve the food inflation outlook,” the MPC noted according to the minutes posted on the RBI’s website. “The momentum of growth is expected to quicken with a normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to the urban consumption spending from the pay commission’s award.”The RBI had on October 4, cut the repo rate by 25 basis points to 6.25 per cent, based on the MPC’s unanimous vote to support growth, and consistent with an accommodative monetary stance. “The reduction in inflation in August is more real than statistical — a collapse in momentum which allowed the play of base effects,” Michael Debabrata Patra, executive director of RBI and MPC member, said in his statement, while voting in favour of the rate cut.“This is not to say that the beast has been beaten or it’s back broken, but there is a turn in its momentum that is exploitable, especially by measures that hold down month-on-month changes in prices of essential food items,” Mr. Patra said.RBI Governor Urjit Patel noted that indicators of economic activity pointed to a subdued outlook, though gradually improving. He also echoed the members’ views that, though lower than before, there still were upside risks to achieving the March 2017 retail inflation target of 5 per cent.‘Upside risks’“While our model-based projections indicated upside risks to the target, a calibrated policy judgement was warranted, given that some space for policy action had opened up with the…

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