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All six members of the rate-setting Monetary Policy Committee (MPC) were on the same page on the need to evaluate the cumulative impact of monetary policy tightening so far, thereby unanimously voting for a pause at their last meeting, even as they left the door open for future rate hikes.
The policy repo rate was left unchanged at 6.50 per cent at the last MPC meeting held between April 3 and April 6.
Among the six members, only Jayanth R Varma, Professor, Indian Institute of Management, Ahmedabad, expressed reservation on the resolution “remain focussed on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth,” per the Minutes of the MPC Meeting.
RBI Governor Shaktikanta Das emphasised that the cumulative impact of our monetary policy actions over the last one year is still unfolding and needs to be monitored closely.
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On inflation
He observed that inflation for 2023-24 is projected to soften, but the disinflation towards the target is likely to be slow and protracted. The projected inflation in Q4:2023-24 at 5.2 per cent would still be well above the target.
“Therefore, at this juncture, we have to persevere with our focus on bringing about a durable moderation in inflation and at the same time give ourselves some time to monitor the impact of our past actions.
‘I am, therefore, of the view that we do a tactical pause in this meeting of the MPC. Accordingly, I vote for a pause in rate action and for remaining focussed on withdrawal of accommodation...This is a tactical pause and not a pivot or a change in policy direction,” Das said.
Also read: MPC’s pause raises many questions
Michael Patra, Deputy Governor, said it is prudent to anticipate future shocks to the inflation trajectory while evaluating the cumulative tightening of monetary policy so far.
Varma said the balance of risks has shifted slightly towards inflation since the February meeting, but the best estimate currently is that the 315 basis points of effective tightening of the overnight interest rate (from a reverse repo rate of 3.35 per cent to a repo rate of 6.50 per cent) would be quite sufficient to bring inflation under control.
Therefore, he voted in favour of keeping the policy rate unchanged in this meeting.
Varma said: ‘I cannot put my name to a stance that I do not even understand. At the same time, it is clear that the war against inflation has not yet been won, and it would be premature to declare an end to this tightening cycle.
‘There is need for heightened vigilance in the face of the fresh risks that I highlighted earlier in my statement. For these reasons, I refrain from dissenting on this part of the resolution and confine myself to expressing reservations on it.’
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