‘Energy transition poses inflation risks’
‘Green’ move risks energy price shocks; China financial sector adds tail risk to global growth: Varma
Special Correspondent
MUMBAI
The ongoing worldwide tran-
sition to green energy poses
a significant risk of triggering
energy price shocks similar
to the 1970s, which would ac-
celerate inflation, said
Jayanth Varma, the sole
member of the RBI’s Mone-
tary Policy Committee (MPC)
to vote against continuing
with the central bank’s ‘ac-
commodative’ policy stance.
“This means that the up-
side risks to long term infla-
tion and to inflation expecta-
tions are now more
aggravated,” Mr. Varma said
at the last MPC meeting, the
minutes of which were re-
leased on Friday.
“My second recent con-
cern is about the tail risk to
global growth posed by
avoid surprises is no longer
appropriate,” he asserted,
adding that he was in favour
of raising the reverse repo
rate from the current 3.35%
towards 4% so as to ‘demon-
strate the MPC’s commit-
ment to the inflation target,
help anchor expectations
and enhance macroeconom-
ic stability’.
Reiterating his reserva-
tions from August, Mr. Var-
ma said his central argument
was that the COVID-19 pan-
Agility sought: RBI policy making that is guided by an excessive demic had mutated into a
desire to avoid surprises is no longer apt, says Varma. REUTERS
* human tragedy rather than
an economic crisis, and mo-
emerging financial sector bility and agility,” Mr. Varma netary policy would be far
fragility in China reminiscent stressed. less effective than fiscal mea-
of Japan of the late 1980s,” he sures in providing targeted
said. “Both of these risks... ‘Slow motion’ relief to the worst hit seg-
are well beyond the control “A pattern of policy making ments of the economy. Also,
of the MPC, but they warrant in slow motion that is guided inflationary pressures were
a heightened degree of flexi- by an excessive desire to showing signs of greater per-
sistence than anticipated
earlier, he added.
Other members who vot-
ed to hold interest rates and
retain the ‘accommodative’
stance too flagged concerns
about the outlook for infla-
tion as the MPC observed
that core inflation, inflation
excluding food and fuel, re-
mained elevated and sticky
at 5.8% in July-August 2021.
“Core inflation is affected
by the prices of transport
fuels and transport services
that are directly affected by
the crude oil price shocks,”
noted Shashanka Bhide, ad-
ding that ‘reduction in indi-
rect taxes would play an im-
portant role in easing shocks
on transport costs and over-
all inflation’. A view echoed
by Ashima Goyal, who too
urged tax cuts on fuels.