SINGAPORE – Inflationary pressures and the state of economic recovery will guide future policy moves by the Reserve Bank of India, a member of the bank’s monetary policy committee told CNBC.
In her personal capacity, Ashima Goyal, who is also an economics professor at India’s Indira Gandhi Development Institute, said the RBI’s monetary policy committee “is concerned about inflation”.
According to local media reports, Goyal was appointed to the central bank’s monetary policy committee in October.
“Inflation has been above our target for the past few months, but it has been falling over the past month,” she said on CNBC’s Street Signs Asia on Wednesday.
“I think the reason for this is that the ongoing effects of the lockdown are generally less than expected,” Goyal said. She referred to India’s national lockdown between late March and May to slow the spread of the coronavirus, causing a collapse in private consumption and investment demand and forcing the economy into two consecutive quarters of contraction.
We believe that inflation will return to the target range.
Ashima Goyal
Member of the Monetary Policy Committee of the Reserve Bank of India
Economists were unimpressed by the government’s fiscal measures announced last year to revive growth. Some suggest it was up to the RBI to do the heavy lifting on short notice. The central bank has kept the key interest rate at which it grants commercial banks loans unchanged since May.
Inflation has remained well above the RBI’s target range of 2% to 6% in recent months. However, retail inflation fell to 6.93% in November as food prices fell, Reuters reported. Some economists expected inflation to continue easing in both December and early 2021.
“Due to inflationary pressures, the RBI has been on hold and has not cut rates after the initial cuts. They have been stable over the past few months,” said Goyal, adding: “We believe inflation will return to the target range. “” It did not provide a precise timetable for when inflation could fall below 6%.
When asked about future central bank interest rate movements, Goyal said the monetary policy committee would make “data-driven” decisions. “We are seeing what happens to inflation and how the recovery takes shape,” she added.
The World Bank recently forecast a recovery in Indian economic growth to 5.4% in 2021 but said “The recovery from a low base will be offset by subdued private investment growth amid weaknesses in the financial sector.”
A naval officer walks past the Reserve Bank of India (RBI) building in Mumbai, India on Tuesday, March 3, 2020.
Kanishka Sonthalia | Bloomberg | Getty Images
Citi economists said in a statement Monday that data suggests the government’s position is “less precarious” ahead of the 2022 budget submission on Feb.1. They said that while government spending on incentives subsided in areas such as agriculture and rural areas, spending by infrastructure-related ministries such as railways, road transport, water and housing has picked up.
While a compression in government spending weighed on the second quarter of India’s fiscal year 2021, which ends March 31, Citi economists said, “Spending trends in the (third quarter) support the recovery in growth.”
The government has also generated better-than-expected gross tax revenues in recent months, suggesting “a less challenging fiscal position,” the economists said.
