What is MPC member Jayant R Verma on inflation & economic challenges?

Q1: In the MPC minutes that were out last week, you said RBI still needs to do a lot of catch-up. The repo rate has been hiked by more than 90 bps since May. How much of a hike in repo rate do you expect in 2022. 

Ans:

>Inflation has been rising faster than the repo rate

>Rate hike of 90 bps is large, but realised inflation has shot up by more than 100

>In term of inflation-adjusted policy rate, we have barely budged from April 2022

>The real policy rate is negative now 

>Considering the projected numbers for 2022-23, the repo rate is negative real  

Q2: When do you see the real rates becoming positive? 

Ans: 

>Part of the surge in inflation is due to the Ukraine situation and global headwinds

>If global environment stabilises, crude oil prices come down, large correction in metal prices is expected

>A good monsoon will bring down food prices and help bring down inflation

>Task of the RBI MPC becomes easier if inflation comes down

Q3: How much of a growth sacrifice you think is tolerable in the current situation?

Ans:

>When the pandemic was wreaking havoc on the economy, recovery was the only focus area 

>Economic recovery is robust today

>We are at a point now where inflation itself is posing a threat to the recovery

>For consumer goods companies, inflation is a threat to demand 

>Income of people has not risen as much as inflation has

>MPC is right to prioritise inflation 

Q4: Some of the members have indicated that if MPC fails to meet its inflation mandate, which is to keep average inflation between 2% and 6% over three quarters – it is mainly due to the external factors, because 75% of rise in inflation since Feb is due to the war in Europe. Do you agree with that view? 

Ans:

>Mandate given to the MPC was 4 to+/-2% and three quarters

>First leeway given to the MPC: It can deviate from the target and go to 5-6%

>Second leeway given to the MPC: A time window of three quarters to deal with eventualities 

>MPC should not chase excuses about its inflation mandate 

>The 2% leeway was given to MPC because of the uncertainities

>Bringing down inflation to 4% as quickly as possible should be the focus now