INSUBCONTINENT EXCLUSIVE:
The latest pick up in inflationary pressures is caused by higher food and fuel pricesIndian monetary policy makers are tolerating inflation
rates higher than their 4 per cent medium-term target while they focus resources on an economic rebound
Economists see the Reserve Bank of India taking a grin-and-bear it approach to price pressures as it seeks to help Asia's No
3 economy recover from one of the world's worst coronavirus outbreaks
The RBI has chosen to look through a recent surge in inflation because it was supply-side driven, and will only turn persistent when demand
kicks in, Deputy Governor Michael Patra said at a briefing June 4.While the wholesale price print due Monday will probably make for another
grim reading, retail inflation is seen hovering above the 5 per cent mark for the third out of five months this year
Monetary policy makers ignored the acceleration and earlier this month retained an "accommodative" stance for as long as needed to restore
growth on a durable basis."The RBI has clearly turned more tolerant of inflation and by the looks of it, they seem to be OK with the
headline rate above the mid-point target of 4 per cent," said Priyanka Kishore, head of India and Southeast Asia Economics at Oxford
"We expect growth concerns to dominate and push out policy normalization well into 2022."The RBI isn't thinking about normalization at the
moment, Governor Shaktikanta Das said this month
His rate-setting committee, which cut borrowing costs by 115 basis points in 2020, has kept rates unchanged at a record low for more than a
year to support growth after a rare contraction last year
While the central bank sees the economy expanding 9.5 per cent in the year started April 1, that is slower than the 10.5 per cent pace it
had forecast before a deadly second wave of coronavirus swept through the nation of more than 1.3 billion people.A string of lockdowns to
stem the pandemic crippled activity and throttled demand in an economy that's primarily driven by domestic consumption
High taxes and rising unemployment has also left consumers wary of spending, as well as glum about future prospects.So although data Monday
might show wholesale prices grew 13.4 per cent, the highest rate in almost three decades, it's unlikely yet to fully feed into consumer
Companies have absorbed some of the increase in producer prices given weak demand in the economy
Consumer price growth data for May is also due Monday, forecast in Bloomberg survey to rise 5.38 per cent from a year ago.The six-member
Monetary Policy Committee is convinced that sticky inflation is due to supply-side problems and doesn't yet warrant withdrawal of the
extraordinary measures.A group of researchers led by a former MPC member Ravindra Dholakia went as far as suggesting that a looser inflation
target could help boost growth
They, in an RBI-sponsored working paper last month, concluded that a higher threshold for inflation is conducive for growth in emerging
economies.For India, growth is maximized if inflation is allowed to rule around 6 per cent, and minimized once prices spike to 9.5 per cent,
the researchers wrote.This isn't the first time that there's been a call for a looser inflation target
However, the government earlier this year renewed the RBI's inflation targeting mandate that requires it to keep price-growth at the 4 per
cent midpoint of a 2 per cent-6 per cent target band
The central bank expects inflation to end up at 5.1 per cent in the fiscal year ending March.The latest pick up in inflationary pressures is
caused by higher food and fuel prices along with stubborn underlying price pressures, according to Bloomberg Economics' Abhishek Gupta, who
doesn't expect a hawkish response from the RBI."The RBI sees inflation staying below the 6 per cent upper end of its target range this
"And its focus now is on supporting a recovery with an accommodative stance."(Except for the headline, this story has not been edited by
TheIndianSubcontinent staff and is published from a syndicated feed.)
