MPC Meet Reaffirms Dovish Stance: Emkay Global

The minutes of Feb'22 policy reaffirmed the MPC's dovish stance on net, largely hinging on the weak growth narrative, Emkay Global has said in a report.

"Most believe growth may have lost some momentum, remains sub-par, and needs policy support to draw near the lost ground. Monetary policy complementarity and favorable financial conditions are still needed.

The inflation narrative saw coherence among members, with most seeing it peak and moderate ahead. The persistence of supply-side inflation shocks on account of 1) commodity price shocks due to geopolitics and 2) dragging supply chain disruption, may be countered by weak demand dynamics. Prof. Goyal and Dr. Patra took a hard line on excessive inflation targeting, stating that the output sacrifice -required to tame supply-driven inflation can be very high. Dr. Patra seemed critical of DM central banks' supposed rear-view mirror outlook on inflation," Emkay Global has said in its report.

Watching the inflation space carefully and the output sacrifice ratios

Most members, according to Emkay Global reckoned retail inflation has likely peaked and will moderate ahead. Weak demand side pressures were emphasized amid moderation in household expectations and high unemployment. Cost push inflation risk persists via rising commodity prices amid geopolitical concerns and still-elevated supply disruptions. Some members also argued for continued policy coordination between monetary and fiscal to control price pressures. However, prof. Goyal reckoned that in India, percolation of producer prices is lower on retail as food inflation dominates the inflation scenario. She noted that the output sacrifice required to tame supply-driven inflation can be very high if supply is elastic, as in India. Dr. Patra also stressed that using monetary policy to ease supply-side inflation will only destroy nascent demand. While he believes that our inflation dynamics are different from the western countries, he seems critical of their supposed rear-view mirror outlook on inflation, which would hurt growth.