RBI governor Sanjay Malhotra said during his address at Princeton University that the present crisis particularly impacts us as West Asia contributes about one-sixth of our exports, one-fifth of our imports, half of our crude oil imports, two-fifths of our fertilisers imports and almost two-fifths of our inward remittances, . The appropriate monetary policy response to such a supply shock is to look through the first-round effect to the extent that it does not feed into second-round dynamics. Second-round effects are the real concern, he stated. They can materialise if the supply chain disruptions continue for long. Then, what began as a supply shock can become embedded in the general price level. Preventing this entrenchment is where monetary policy has a primary role to play through its influence on inflation expectations rather than through blunt demand compression, he noted.
Moreover, in uncertain times such as this, it is important to be agile and nimble, maintaining a broad policy stance, and avoid making firm commitments of the future path of policy. In such circumstances, our broad approach has been to be even more data dependent and to continuously reassess the balance of risks, the RBI chief said. We are therefore in wait and watch mode now. Moreover, we have been maintaining a neutral stance for the last few policy cycles. It preserves the flexibility to respond as the inflation-growth dynamics evolve. During the current crisis, domestic production of oil and gas is being ramped up. Sources of imports are being diversified. While there is no shortage of oil, given the reserves maintained by us, there is some rationing of gas for industrial purposes. The oil marketing companies and government have absorbed the price pressures in oil, while passing on some of the price pressures on gas to the consumers, he further stated.
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