Reserve Bank of India (RBI) Governor Urjit Patel sees domestic growth impulses continuing to remain reasonably strong as the monsoon, which has been normal ‘so far’, augurs well for the farm sector, according to the minutes of the Monetary Policy Committee’s meeting earlier this month.
“The manufacturing sector has continued to be robust,” Dr. Patel was cited as having said at the meeting, the minutes of which were released on Thursday. “Several high frequency indicators of services activity have expanded at a faster pace in recent months,” he said, adding rising trade protectionism may impact domestic investment and growth prospects by dampening India’s exports.
The RBI on August 1 retained its forecast for GDP growth in the current fiscal year at 7.4% and projected the pace at 7.5% for the first quarter of 2019-20.
While noting that consumer price inflation, excluding the impact of house rent allowance, had risen for the third consecutive month in June, Dr. Patel said there was considerable uncertainty around the full impact on inflation from the changes in the minimum support price for kharif crops, adding that a clearer picture would emerge only in the coming months.
On August 1, the RBI, raised the benchmark repo rate by 25 basis points (bps), with five of the six members voting for an increase.
‘Upside risks’
“I am more concerned about upside risks materialising compared to downside risks” for the inflation outlook, RBI deputy governor Viral Acharya said during the meeting, the minutes show.
“This is especially so as most real-time indicators suggest that growth recovery is likely to be sustainable,” he said, adding estimates suggested that the output gap in the economy had more or less closed.
Dr. Acharya said the last three rounds of RBI’s Inflation Expectations Survey (IES) of households reflected a hardening of the 3-month ahead and 12-month ahead inflation expectations by 110 bps and 150 bps, respectively.
Ravindra Dholakia, the sole member who voted against raising rates, said the monthly headline inflation prints for May and June had turned out to be less than what the RBI had expected.
