The monetary policy committee (MPC) is continuing with the “withdrawal of accommodation” stance since the headline inflation is not at the 4 per cent target and it wants to focus on disinflation, said Ashima Goyal, Professor, Emeritus Professor, Indira Gandhi Institute of Development Research (IGIDR).

Goyal, who is also an external member of the rate-setting MPC, expects the headline (Consumer Price Index-based) inflation to move towards the core inflation level soon.

Inflation based on the Consumer Price Index (CPI) eased to a three-month low of 5.1 per cent in January from 5.7 per cent in December largely driven by lower food prices.

However, a further drop in core inflation to 3.5 per cent (from 3.8 per cent previous month) — a 50-month low — stole the limelight, Crisil’s Market Intelligence & Research division, in a recent report, said. “Our target is headline (CPI), and core inflation is lower than the target. But it is the headline that reflects people’s expectations — wages and other interest-bearing contracts. So, we (MPC) want to see that the headline comes down to target,” the IGIDR Professor said at a conference organised by the Indian Institute of Management, Kozhikode.

At the last MPC meeting, Goyal voted to keep the policy repo rate unchanged at 6.50 per cent and continue with the monetary policy stance to “remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.”

On the stance, the professor said, “It has to be understood that it is coming from the pandemic time, when huge expansion of (central) bank balance sheets, large amount of liquidity was injected and overall stimulus...therefore, withdrawal.”

She emphasised that careful policy choices are required to retain freedoms to respond to domestic needs.