“Uncertainties about energy prices have increased significantly. India’s crude oil basket has risen nearly 25% in the previous two months. The current geopolitical stress in Europe is a significant risk and if it translates into a spike in oil and gas prices, we will need to adjust macroeconomic policies appropriately,” RBI Deputy Governor Mridul Saggar said. , according to the minutes of the MPC meeting.
According to Saggar, the higher level of foreign exchange reserves means that India has become less sensitive to global factors. “However, it will be important to maintain credibility by aiming to keep inflation on a sustainable basis at or near target as soon as real economy conditions normalize,” he said.
What makes the central bank more confident in handling the situation is the debt coverage ratio. The foreign exchange reserves of the RBI stood at $630 billion as of February 11, of which foreign currency assets were $566 billion.
“India’s total external debt is more than covered by the stock of international reserves. India’s international assets cover three quarters of all international liabilities. Thus, the external sector, which will bear the brunt of shocks from abroad, remains robust and resilient enough to withstand the tidal waves of the global fallout,” said RBI Deputy Governor Michael Patra.
The minutes reveal that the central bank believed that growth momentum had been achieved during the third quarter, prompting it to maintain its dovish stance. “Inflationary pressures in India continue to emanate largely from supply-side factors, and the recent release also reflects adverse base effects,” Governor Shaktikanta Das noted, according to the minutes.
“The expected moderation in the path of inflation over the next fiscal year leaves scope for monetary policy to remain accommodative. At the same time, the economic recovery from the pandemic remains incomplete and uneven and continued support from various policies remains crucial for a sustainable recovery.
Shashanka Bhide, external member, also expressed concerns about the geopolitical situation. “The global economic environment is also affected by persistent geopolitical risks which may, in turn, affect trade, prices and capital flows,” he said.
External member Jayant Varma said the third wave showed the economy is no longer hostage to the pandemic. “As we meet, geopolitical tensions have become a bigger risk to the global economy than the virus,” he said.