- March 10, 2022
- Posted by: admin
- Category: Daily News
- The Indian central bank’s subdued inflation forecast for next financial year assumes oil at USD80 a barrel, and risks to that outlook from Russia’s war-induced supply disruptions are best handled by the government, according to a monetary policy maker.
- “If international oil sustains above this for a substantial period and there is pass-through to domestic oil prices, projected inflation would rise,” Ashima Goyal, an external member on the Reserve Bank of India’s six-member Monetary Policy Committee, said in an email interview.
- “Inflation targeting theory tells us that tightening monetary policy under supply shocks, or if there are unemployed resources, imposes a large output sacrifice,” she said.
- The government should step in by lowering the cost of fuel by cutting some taxes, Goyal said, pointing to the revenue windfall from higher tax rates on retail fuels when they were cheap during the pandemic.
- If prices continue to remain high, though, “some burden sharing would have to be evolved,” she said.
- Goyal, an economics professor at the Mumbai-based Indira Gandhi Institute for Development Research, said she preferred to “wait and watch” before more clarity on the oil situation emerges by the next policy review between 6 and 8 Apr 22.
- “Inflation has stayed within the tolerance band in very difficult conditions and projections were for it to come down toward the target.
- “How is this being behind the curve?” she said, referring to concerns expressed by her MPC colleague Jayanth Rama Varma that the authority risks falling behind the curve if it keeps rates loose for too long.
- “If CPI headline is expected to persistently exceed the tolerance band, the MPC will act,” Goyal said. “The MPC can act quickly if needed from an accommodative stance also. But the current crisis needs to be watched for some time before reacting”.
- She does “not expect extraordinary accommodations although global central banks may moderate the pace of exit depending on how their economies are affected,” citing research that exit from easy policies in an economy like India should be gradual. “The RBI has done exactly that and will continue”.
External Link : https://www.bloomberg.com/news/articles/2022-03-10/india-s-cpi-view-assumes-oil-at-80-with-risks-seen-manageable