RBI Governor downplays inflation risk, harps on growth

Reserve Bank of India (RBI) Governor, Urjit Patel has downplayed the risk of inflation and harped on the focus on growth. Patel said that the goods and services tax (GST) regime would not harden inflation and the growth objective will remain part of the newly constituted Monetary Policy Committee’s (MPC's) mandate.

The governor in a closed-door meeting with group of economists said there will be many items whose prices would fall and therefore help in at least partially offsetting the increase in prices of other items of consumption, hence he is of the view that the GST regime would not harden inflation as is widely perceived.

It was reported that Patel informally discussed with the group of economists whether the weight (which could raise CPI following higher outgo on public sector salary and HRA) should be cut. He expressed his view that the weight assigned to public sector housing and the rent in the calculation of the consumer price index (CPI) should be lowered.

The newly constituted six-member Monetary Policy Committee (MPC) is likely to maintain a dovish and accommodative stance on interest rates and liquidity, as Patel said that keeping in mind the growth objective was also part of MPC's mandate. Earlier interest rates were decided solely by the RBI governor but now under the new norms, the six-member MPC headed by the RBI governor and with members nominated by both the Centre and the central bank will take decisions on interest rates.