RBI Officials says, High Prices Slow India's Growth,
Inflation Target Key for Recovery
Los Angeles/Dec 20, 2024
NRIpress.club/Ramesh/A.Gary Singh
India’s demand slowdown is being driven by high prices, and achieving the central bank’s 4% inflation target is critical to sustaining economic growth, according to the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) minutes from December.
“The policy priority at this stage must be to restore the balance between inflation and growth,” RBI Governor Shaktikanta Das stated.
Das noted that lower inflation would improve households’ disposable income and purchasing power, which in turn would boost consumption and investment demand.
Although the RBI kept its key interest rate unchanged this month, it reduced banks’ cash reserve ratio for the first time in over four years to ease monetary conditions amid slowing growth.
India’s GDP growth dropped to 5.4% in the July-September quarter, its slowest in seven quarters, while inflation remains above the 4% target.
Deputy Governor Michael Patra stressed that while monetary policy could support growth, it must wait for inflation to decrease sustainably to avoid reversing the progress in reducing price pressures.
External member Saugata Bhattacharya said both growth and inflation indicators have worsened, increasing the risk of policy missteps compared to October.
Two external members, Nagesh Kumar and Ram Singh, voted for a 25-basis-point rate cut, arguing it would help revive growth without worsening inflation, which may ease with seasonal corrections.
Kumar and Singh also emphasized that monetary policy has limited influence on food inflation, and delaying a rate cut could risk sharp currency appreciation as other central banks globally adopt easier monetary policies.
“When food prices have a weak correlation with core inflation and the contributors to inflation have reduced, maintaining high interest rates imposes growth costs disproportionate to price control benefits,” Singh explained.
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