The monetary policy committee’s job is only half done, having brought inflation within the target band, according to Reserve Bank of India Governor Shaktikanta Das.

“Our fight against inflation is not yet over,” per Das’ statement at the MPC meeting, which was held on June 6-8.

The MPC’s objective is to achieve the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

MPC Minutes

On Thursday, the RBI released the minutes of the MPC meeting, wherein the members decided unanimously to keep the policy repo rate unchanged at 6.50 per cent. All members were on the same page on aligning inflation to the 4 per cent target.

The MPC also decided by a majority of 5 out of 6 members on the resolution to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth. 

Jayanth R. Varma, Professor, Indian Institute of Management, Ahmedabad, expressed reservations on this part of the resolution.

He said it would be premature to declare victory at this point in time based on the inflation prints of just a couple of months (March–April).

“In this context, I am not at all comfortable with the self-congratulatory tone of the statement in the MPC Monetary Policy Statement that “The MPC took note of the moderation in CPI headline inflation in March-April into the tolerance band, in line with projections, reflecting the combined impact of monetary tightening and supply augmenting measures,” Varma said.

The main reason for not dissenting (and expressing only reservation) is that, after two successive meetings at which the repo rate has been left unchanged, this stance now appears more vestigial than a serious statement of intent, he added.

Michael Debabrata Patra, Deputy Governor, observed that the near-term outlook for inflation is relatively benign vis-à-vis the 2022–23 experience.

Beyond the first quarter, however, pressure points emanating from specific supply-demand mismatches could impart upward pressure to the momentum of prices and offset favourable base effects, especially in the second half of 2023–24.

“Hence, monetary policy needs to remain in ‘brace’ mode, ensuring that the effects of these shocks dissipate without leaving scars on the economy.

“Accordingly, my vote for maintaining status quo on the policy rate should be seen as taking middle stump guard to prepare for a bouncier pitch,” Patra said.

He emphasised that holding the rate unchanged should not be interpreted as the interest rate cycle having peaked but as a period of careful evaluation of a decision on the extent of additional policy tightening, if needed.