Resilient growth creates space for the monetary policy to focus unambiguously on inflation, which remains well above the 4 per cent per cent target, according to RBI Governor Shaktikanta Das.

“With persistently high food inflation, it would be in order to continue with the disinflationary policy stance that we have adopted. Any hasty action in a different direction will cause more harm than good.

“It is important that inflation is durably aligned to the target of 4 per cent. Price stability is the bedrock for high and sustainable growth,” per his comments at the last MPC meeting. RBI released minutes of the meeting on Friday.

He observed that the calibrated tightening by 250 basis points in repo rate (from 4 per cent to 6.5 per cent) between May 2022 to February 2023 has achieved disinflation with minimal output sacrifice as growth remains strong.

“Headline CPI inflation is moderating, but at a very slow pace. The last mile of disinflation is turning out to be gradual and protracted.“

“Food inflation is the main factor behind the grudgingly slow pace of disinflation. Recurring and overlapping supply-side shocks continue to play an outsized role in food inflation,” Das said.

MD Patra, Deputy Governor, underscored that the speed of the easing of inflation has been disappointing so far, even from a cross-country perspective.

“Food prices are persisting for too long as the principal impediment to a faster disinflation. The Indian economy remains hostage to intersecting food price shocks. Their repetitive occurrence calls for intensifying monetary policy vigil to ward off spillovers to other components of inflation and to expectations.

“This also warrants looking through the statistical soft patch in inflation’s trajectory that is anticipated during July-August 2024, while staying prepared to blunt the uptick that is expected from September. Food prices are holding back any consideration of possible changes in the monetary policy stance,” Patra said.

Rajiv Ranjan, Executive Director, RBI, observed that the monetary policy actions should continue to be primarily guided by domestic macroeconomic conditions and the outlook.

“The growth-inflation mix at the current juncture allows us to move more cautiously on the inflation front. Hence, we should not waver from our focus on price stability which remains so important for our long term sustained growth outcome,” he said.

Shashanka Bhide, Honorary Senior Advisor, National Council of Applied Economic Research, Delhi, noted that the headline inflation rate gradually moving to below 5 per cent mark in March and April, and projected at less than 4 per cent mark in Q2 (July-September), marks an important macroeconomic condition that can support sustained growth.

Clearly, the moderate inflation rate will have to be durable to be an effective condition for sustained growth, he added.

“In this context, the policy would have to continue its focus on maintaining the inflation rate aligned to the target over the medium term. The rise in projected inflation rate above the 4.5 per cent mark in H2 of the financial year reflects the underlying price pressures, which if not addressed would not meet the policy goal.

“As a major part of these price pressures relate to food inflation, a watchful approach is appropriate to ensure that there are no spillovers of high food inflation to the prices of the other items in the consumption basket,” Bhide said.

He emphasised that as the aggregate output projections for 2024-25 reflect strong GDP growth, keeping the monetary policy focus on achieving the inflation target on a durable basis is appropriate at this juncture.