RBI Deputy Governor Michael Patra made a spirited defence of the central bank’s conduct of monetary policy during the pandemic in his speech at the Financial Markets Summit of the Confederation of Indian Industry on Thursday. much more significant is that the incontrovertible fact that his speech contained important clues about the longer term direction of monetary policy.

Listed below are a number of those points:

On growth

Data suggest that the worldwide recovery could be faltering or a minimum of losing pace
In India, while the recovery is broad-based, with manufacturing because the pivot, but output, especially in contact-based services, remains below pre-pandemic levels
Seasonally adjusted capacity utilisation in manufacturing is predicted to recover within the last half of the year, but catching up with the pre-pandemic trend will take time
Inventories of raw materials are below pre-pandemic levels and are expected to be drawn down further, suggesting that demand is gradually recovering
For the economy as an entire , the output gap – which measures the deviation of the extent of GDP from its trend – is negative and wider than it had been in 2019-20
On inflation
Global inflation continues to linger and therefore the jury remains out whether it’s transitory or persistent
In India, inflation is moderating, but core inflation remains elevated and sticky
Supply shocks are likely to be persistent and therefore the easing of headline inflation from current levels is predicted to be ‘grudging and uneven’
rising staff costs suggest incipient wage pressures are building within the organized sector
Although the government’s measures to reinforce supply may help bring down costs, the undergo of imported price pressures to retain prices is incomplete

surveys of the manufacturing, services and infrastructure firms are pointing to a rise in selling prices within the period ahead
While the inflation target remains at 4 per cent, there’ll be a approach path towards achieving it, with average inflation falling from 6.2 per cent in 2020-21 to five .7 per cent in 2021-22 to below 5 per cent in 2022-23 to closer to the 4 per cent target by 2023-24
Liquidity is abundant, with on the brink of Rs 9 trillion being absorbed by the RBI on a day to day , but markets are constantly seeking reassurance that the accommodative stance will continue
The rebalancing of liquidity conditions will ‘dovetail’ into the approach path for inflation ( see no. 12 above)