Finance Ministry ‘looking forward to RBI to support revival’

The Union Finance Ministry has said that the Centre and the Reserve Bank will work towards a monetary policy framework that will help reduce inflationary expectations and further support the revival of investment and growth.

Responding to the Monetary Policy Statement issued by the Reserve Bank on Tuesday morning, the Ministry stated in the evening: “Government looks forward to the RBI [Reserve Bank of India] supporting the revival of growth and employment.”

In the weeks ahead, the government and the RBI will work towards a monetary policy framework that will help institutionalise the gains achieved on the inflation front, so as to reduce inflationary expectations and further support the revival of investment and growth, the Ministry said.

As expected, the RBI kept the key policy rates unchanged in its Monetary Policy but warned that the favourable base effect that is driving down inflation will likely dissipate and the data for the month of December “may well rise above current levels”. It also said that the sharp deceleration in retail inflation was to some extent on account of transitory factors such as favourable base effects and the usual softening of fruits and vegetable prices that occurs at this time of the year. It red-flagged the continuing upside pressures in prices of protein-rich food items such as milk and pulses, which, it said, reflect structural mismatches in supply and demand.

The RBI also said that the key uncertainty was the durability of the upturn as the full outcome of the north-east monsoon will determine the intensity of price pressures relating to cereals, oilseeds and pulses. “...but it is reasonable to expect some firming up of these prices in view of the monsoon’s performance so far and the shortfall estimated for kharif production.”

The Reserve Bank retained its growth projection for 2014-15 at 5.5 per cent stating that a durable revival of investment demand continues to be held back by infrastructural constraints and lack of assured supply of key inputs, in particular coal, power, land and minerals. It would be the success of ongoing Government actions these areas that will be key to reviving growth.