RBI MPC Minutes: Governor Shaktikanta Das Says Fight Against Inflation 'Only Half Done'

Last month, the Monetary Policy Committee decided to keep the repo rate unchanged at 6.5 per cent, with a focus on withdrawing accommodation of the policy stance.

The minutes show that six-member monetary policy committee (MPC) members appeared increasingly divergent in their views on the future course of rate hikes.

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According to Reserve Bank Governor Shaktikanta Das, the fight against inflation is "only half done". The Reserve Bank of India on Thursday released the minutes of the MPC meeting held from June 6 to 8. The minutes show that six-member monetary policy committee (MPC) members appeared increasingly divergent in their views on the future course of rate hikes.

Last month, the Monetary Policy Committee had decided to keep the repo rate unchanged at 6.5 per cent, with a focus on withdrawing accommodation of the policy stance, as the inflation came under the RBI's upper band limit. 

However, Governor Shaktikanta Das opined, "Our job is only half done, having brought inflation within the target band. Our fight against inflation is not yet over. We need to undertake forward-looking assessment of the evolving inflation-growth outlook and stand ready to act, if situation so warrants."

"Beyond this and given the prevailing uncertainties, it is difficult to give any definitive forward guidance about our future course of action in a rate tightening cycle," he said as per the minutes.

Das also said India’s macroeconomic fundamentals are strengthening and growth prospects are steadily improving and becoming broad-based.

According to the Reserve Bank real GDP growth for 2023-24 is projected at 6.5 per cent , with Q1 at 8.0 per cent, Q2 at 6.5 per cent, Q3 at 6.0 per cent, and Q4 at 5.7 per cent. 

The government has assigned the RBI with the responsibility of maintaining retail inflation at 4 percent, with a permissible range of 2 percent on either side. Retail inflation, as measured by the consumer price index, reached 4.25 percent in May.

As per the minutes of the MPC meeting, some external members argue that further tightening could hamper the economic recovery. 

"Monetary policy is now dangerously close to levels at which it can inflict significant damage to the economy," external member Jayant Varma said in the meeting. However, he did not dissent on rate hike pause. 

"I have therefore seriously considered dissenting on this part of the resolution, but after careful thought I have decided to confine myself to expressing reservations on it," Varma wrote in the minutes.

"The main reason for not dissenting 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," Varma said. Adding that “with every successive meeting, this stance is becoming more and more disconnected from reality.”

In the earlier policy meetings too, Varma had criticised the continuation of the monetary policy stance saying that he failed to comprehend its meaning.

Another MPC Member Ashima Goyal noted that Inflation has moderated into the tolerance band but is not yet firmly on the path to the target, particularly in view of monsoon-related uncertainties.

"Even so, it is clear that core inflation is neither persistent nor broad-based. Core inflation fell from 6.2% in January to 5.1% in April this year," Goyal said. Adding that softening is to be expected in the absence of true second-round effects from excess demand or from tight labor markets. 

During the vote to keep the repo rate unchanged at 6.5 percent, MPC member and Deputy Governor Michael Debabrata Patra stated that his decision to maintain the status quo on the policy rate should be interpreted as taking a cautious approach to prepare for potential challenges ahead.

"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," he said.