“They have been working through the aggregate demand channel to reduce inflation but aggregate demand channel is weak in India,” said Goyal, who earlier served as a member of the RBI’s technical advisory committee on monetary policy. Decreasing aggregate demand, “decreases output, and has the first effect on output and little effect on inflation.”
“The recovery is there but it’s not large,” she said. “There are demand constraints. So, therefore, whatever space there is — fiscal, monetary — should be used.”
“The RBI has over-delivered on its inflation mandate,” said Abhishek Gupta, Mumbai-based India analyst with Bloomberg Economics. “Structural reforms are lifting potential GDP growth, but a tight monetary policy stance by the RBI is restraining consumption and investment demand.”
Urjit Patel became RBI governor in September 2016, taking over from Raghuram Rajan.
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