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Inflation expectations remain well anchored: Jayanth Varma – Economy News
With inflation only modestly above target, the risk of it rising to a very high level is low, says the external member of the Monetary Policy Committee (MPC). Jayant Varma. He counts Ajay Ramanathan that tepid global demand is a major obstacle to growth. Parts:
Most of his colleagues at the MPC highlighted that inflation risks still persist. Are the risks overestimated?
It is true that there are risks to the forecasts, but the MPC has clearly stated that the risks are balanced on both sides. Inflation may be lower or higher than expected. Furthermore, with inflation only modestly above target, the risk of it rising to very high levels is quite low. Inflation expectations remain well anchored.
When will inflation align with the 4% target? What factors will influence this?
I expect inflation to reach the target on a sustained basis in 2025-26, but even in 2024-25 it would only be modestly above the target.
In your opinion, what is the reason behind the persistence in the “withdrawal of accommodation” stance?
Two of us disagreed with the position at this meeting. I find it difficult to understand the logic behind this stance.
Projected real GDP growth for 2024-25 has been revised upwards to 7.2%. Will this be hampered by an overly restrictive policy?
There is a lot of uncertainty in the forecasts and I am not too worried about a 10 or 20 basis point (bps) change in the growth rate. My concern is that almost all analysts are projecting a growth rate below potential and below what is necessary in the current phase of our demographic transition. I see an urgent need for monetary policy to support growth to the extent possible while remaining tight enough to put downward pressure on inflation.
What are some other downside risks to economic growth?
Weak global demand is currently a major drag on growth.