Resurgence in inflation in May and June above the upper threshold had reignited debate on the appropriate monetary policy response, said RBI Governor Shaktikanta Das, according to Monetary Policy Committee (MPC) minutes released on Friday. The RBI released the minutes of the August 4-6 MPC meeting on Friday. 

“The need of the hour is two-fold: First, continue the monetary policy support to the economy; and second, remain watchful of any durable inflationary pressures and sustained price momentum in key components so as to bring back the CPI inflation to 4 per cent over a period of time in a non-disruptive manner,” said the RBI chief. 

“The economy is struggling to regain the momentum that had gathered in the second half of 2020-21. Many of current price shocks are likely to be one-off or transitory. Weak demand conditions and low pricing power are limiting the extent of their pass-through to output prices,” said Mr Das. 

“There is still considerable slack in the economy. Domestic demand is picking up but at a slow pace. Several supply-side measures have been taken by the government to deal with the inflationary pressures; however, more needs to be done. The daily new COVID-19 infections are sticky at around 40,000 cases per day. Possibility of a third wave looms somewhere in the horizon. On the whole, the economy still requires support in terms of maintaining congenial financial conditions and fiscal boosters. At such a critical juncture, can we really pull the rug and the let the economy tumble,” Mr Das enquired. 

Although investment demand was still anaemic, improving capacity utilisation and congenial monetary and financial conditions were preparing the ground for a long-awaited revival, he added.