Path to inclusive growth must be paved by price stability: RBI officials

RBI officials stress price stability key to sustaining growth

Taming inflation and anchoring inflation expectations is key to helping revive consumer spending and private capital expenditure and thereby supporting growth, RBI officials wrote in an article in the monthly bulletin released on Friday.

“Recent national accounts data and corporate results when read in conjunction clearly show that inflation is slowing down personal consumption expenditure. This, in turn, is moderating corporate sales and holding back private investment in capacity creation.,” the officials including Deputy Governor Michael Debabrata Patra wrote in ‘State of the Economy’.

 “Bringing down inflation and stabilising inflation expectations will revive consumer spending, boost corporate revenues and profitability, which is the best incentive for private capex,” they added.

Private consumption spending, which expanded by a sluggish 2.8% in the January-March quarter of FY23, as per latest NSO data, is estimated to have actually contracted 3.2% sequentially.

The RBI’s officials cited Governor Shaktikanta Das’s comments after the Monetary Policy Committee voted to leave interest rates unchanged this month that monetary authorities would need to move towards ensuring inflation was aligned with the “primary target of 4%”.

Refuting the view that the RBI’s flexible inflation targeting was the single-minded pursuit of a single target, the officials emphasised that contrary to critics’ perception the central bank’s approach was ultimately “a growth preservation and promotion monetary policy framework”.

“It is axiomatic that the path to high but sustainable inclusive growth has to be paved by price stability,” the article’s authors stressed. “Once this is realised, the trade-offs and dilemmas confronting the conduct of monetary policy fade away,” they added,