Reserve Bank's Monetary Policy Committee Shifts Focus To Control Inflation

India's retail inflation jumped to near 7 per cent year-on-year in March. This is the highest in 17 months and above the upper limit of the RBI’s tolerance band for a third straight month

New Delhi: The members of monetary policy committee (MPC) of the Reserve Bank of India (RBI) argued in favour of action to restrict inflationary pressures during their meeting from April 6 to April 8 despite continuing risks to growth, according to a report by Reuters.

The report mentioned that almost all the members were in favour of taking action against inflation.

However, the central bank of the country chose to keep its key lending rate at a record low.

After the meeting, the RBI said that it would shift away from its ultra-loose monetary policy stance to focus on inflation, which has surged due to Russia-Ukraine conflict.

The RBI restored its liquidity adjustment facility to pre-Covid levels, which was seen as a first step in moving away from pandemic emergency measures.

"Circumstances warrant prioritising inflation and anchoring of inflation expectations in the sequence of objectives to safeguard macroeconomic and financial stability, while being mindful of the ongoing growth recovery," Governor Shaktikanta Das wrote in the minutes.

Unanimously the MPC voted to retain its accommodative monetary policy stance. The panel also added that it would shift focus to withdrawal of accommodation in the near future.

The country’s retail inflation jumped to near 7 per cent year-on-year in March. This is the highest in 17 months and above the upper limit of the RBI’s tolerance band for a third straight month.

"The policy will still stay accommodative as rates, even after lifting nominal rates, will stay below real neutral rate for foreseeable future," RBI executive director and MPC member Mridul Saggar said at the meeting.

MPC member Ashima Goyal said that the future policy of actions will either be a pause or raising of rates.

"Rebalancing of liquidity started in 2021, and has now reached a level, with new facilities to absorb liquidity, that is compatible with raising policy rates. Short rates are set to rise to make the repo rate the operational policy rate again," she added.

As long as rates remain below the neutral rate, it is still not a tightening regime, Goyal said.

"The narrative is very clear. Focus is on inflation and inflation containment. June policy will see both stance change to neutral and a repo rate hike," said Rupa Rege Nitsure, chief economist at L&T Financial Holdings.