High inflation weighed on MPC
members as RBI raised rate: Minutes
the six members of the MPC, including the RBI Governor, expressed concern over
continued high inflation and stressed that the cental bank's endeavour would be
to bring down price rise within the target range, as per minutes of the latest
Monetary Policy Committee (MPC) meeting released on Wednesday.
Reserve Bank's rate-setting panel, which met during June 6-8, raised the key
interest rate by 50 basis points -- the second hike within five weeks. In early
May, the policy repo rate was hiked by 40 basis points.
per the minutes, RBI Governor Shaktikanta Das said while high inflation
continues to be the major concern, revival of economic activity remains steady
and is gaining traction. The time is appropriate to go for a further increase
in the policy rate to effectively deal with inflation and inflation
I vote for a 50 bps increase in the repo rate which would be in line with the
evolving inflation-growth dynamics and will help in mitigating the second round
effects of adverse supply shocks," he said.
rate hike, he added, will reinforce the RBI's commitment to price stability --
its primary mandate and a pre-requisite for sustainable growth over the medium
raising the repo rate to 4.9 per cent, the Reserve Bank also revised upwards
its inflation forecast for the current fiscal to 6.7 per cent from its earlier
estimate of 5.7 per cent.
member and RBI Deputy Governor Michael Debabrata Patra said the global
inflation crisis is just the face of one of the most severe food and energy
crises in recent history that now threatens the most vulnerable across the
inflation majorly being driven by supply constraints amid the ongoing
Russia-Ukraine war, Patra said to gain time for supply to respond, the blunt
instrument of monetary policy has to be deployed, and there is no other
recourse at this juncture.
said if inflation is allowed to go out of hand, it could corrode the foundations
of the recovery that is gaining traction, and deter investment decisions.
battle would be lost but the war would have been won if India is able to bend
down the future trajectory of inflation,' he said, and exuded confidence retail
inflation would fall back to below 6 per cent by the fourth quarter of the
Ranjan, RBI Executive Director and MPC member, said with protracted
geopolitical tensions and no early resolution of the conflict in sight,
considerable uncertainty clouds the evolving inflation trajectory.
the supply side measures taken by the government would undeniably alleviate
some cost-push pressures, it needs to be complemented by calibrated monetary
policy actions to anchor inflation expectations and contain the broadening
price pressures," he said, as he too voted for increasing the repo rate by
50 basis points.
also stressed that it may be important for the government -- both Centre and
states -- to successfully complete their budgeted capex plans and work through
their counter-cyclical policy levers to ensure a soft-landing for the economy
amid monetary tightening to rein in inflation.
MPC comprises the RBI Governor, two central bank officials, and three
independent members nominated by the government.
member Shashanka Bhide said the inflationary pressures that have intensified
since March 2022 are expected to remain a concern in FY2022-23 unless the
international supply conditions improve quickly, as per the minutes.
the course of inflation trajectory to reach targeted level is a priority at
this stage for monetary policy although the growth momentum remains modest
one," he noted.
voting for raising the repo rate to 4.9 per cent, MPC member Ashima Goyal said
further changes will depend on growth and inflation outcomes.
future moves will either be a pause or a rise it is also useful to change the
guidance to withdrawal of accommodation," she said.
was in favour of remaining focused on withdrawal of accommodation to ensure
that inflation remains within the target going forward, while supporting
R Varma, who had called for a 100 basis points rate increase to be carried out
very soon in the May MPC meeting, said his preference would have been for an
increase of 60 basis points.
I have decided to go along with the majority view of 50 basis points for the
same reason as in May: a difference of opinion of 10 basis points is not
material enough to be elevated to a dissent," he said.
further said many leading central banks currently provide forecasts of the
future path of the policy rate several quarters ahead.
MPC has now accumulated several years of experience, and the RBI has evolved
into a mature inflation targeting central bank. I believe that the time is
therefore ripe for MPC members to start moving towards providing projections of
the future path of the policy rate," Varma said.
he opined, would help stabilise long-term bond markets and also anchor
RBI Governor had also said the repo rate is still below the pre-pandemic level
and the liquidity surplus is still higher than what it was prior to the
our policy in recent months has been unambiguously focussed on withdrawal of
accommodation, both in terms of liquidity and rates, the change in wording of
stance should be seen as a continuation and fine-tuning of our recent
approach," Das said.
withdrawal of accommodation would be non-disruptive to the process of recovery
and would strengthen the ongoing efforts to combat inflation and anchor
inflation expectations, he added.
next meeting of the MPC is scheduled to be held from August 2-4, 2022.
to the Reserve Bank of India Act, 1934, the central bank shall publish minutes
of the MPC proceedings on the 14th day after every meeting.