According to the Minutes of the Monetary Policy Committee Meeting of the Reserve Bank Of India (RBI), Shaktikanta Das, governor of the central bank, noted that headline inflation moderated to 4.3% in April from 5.5% in March. Large base effects played a crucial role and inflation sobered across food as well as core groups. A softening inflation print provides some relief and policy space enabling the Reserve Bank to step up liquidity infusion into the system to provide further support to the weak domestic economy in line with the MPC’s stance of reviving and sustaining growth on a durable basis. Moreover, the fragile demand conditions could help limit the pass-through of input cost pressures across manufacturing and services to output prices.

He noted that going forward, the consumer price inflation for 2021-22 is projected to be at 5.1%, which is well within the mandated tolerance band of 2-6% though the central bank would need to keep a close watch on the evolving trajectory considering the uncertainties, both on the upside and downside, to the baseline path. Given the predominant role of supply side factors in the recent inflation movements, active and timely supply side policy measures with regard to petrol and diesel, edible oil and pulses, among others, would be critical to bring about a durable softening of price pressures.

Overall, the second wave of COVID-19 has altered the near-term outlook, and policy support from all sides – fiscal, monetary and sectoral – is required to nurture recovery and expedite return to normalcy. The dent on economic activity due to the second wave of the virus has necessitated the continuation of monetary measures to support the process of economic recovery to make it durable. Going forward, the pace of vaccination and the speed with which COVID-19 second wave can be brought under control will have considerable bearing on the evolving growth as well the inflation trajectory, noted Das.

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