Having come so far in the economic cycle, India can not risk another bout of inflation, Reserve Bank of India Governor and Monetary Policy Committee (MPC) Member Shaktikanta Das said on his stance to hold the rates, while external member Nagesh Kumar, the only one in the six-member MPC- voted for a 0.25% rate cut stating it could help revive demand and boost private investment, as per the minutes of the MPC released by the RBI on Wednesday.
Stating that several industrialised and emerging economies have started to cut interest rates to revive economic growth, he said India risked currency appreciation if it does not follow the process of normalisation. “The rupee has been already appreciating in real terms and a further appreciation would hurt the competitiveness of Indian products,” Dr. Kumar said.
“Given that inflationary expectations have been successfully anchored, and industrial demand in both domestic as well as export markets is flagging, a rate cut could help to revive demand and help boost private investment,” Dr. Kumar had observed.
However Governor Das had said,” The best approach now would be to remain flexible and wait for more evidence of inflation aligning durably with the target.
“Monetary policy can support sustainable growth only by maintaining price stability. Taking all these factors into consideration, I vote for changing the stance from withdrawal of accommodation to ‘neutral’ while keeping the policy repo rate unchanged at 6.50%,” he stated in his statement.
Deputy Governor & MPC member Michael D Patra was of the view that the path of inflation was reconfiguring towards the target in the baseline forecast, by his metric of four quarters ahead inflation.
“This trajectory will likely encounter a hump in the near months as the projections indicate, but this is largely due to an adverse base and one-off shocks to prices of vegetables, edible oils and gram. The expectation is that effects of these shocks should dissipate by December as supply conditions improve,” he stated.
“It is, therefore, possible for monetary policy to look through these spikes while monitoring their evolution closely until they are seen off. The overall inflation environment is improving. Households’ and businesses’ inflation expectations have eased and remain anchored,” he added while voting for a pause.
External member Saugata Bhattacharya said given the current heightened uncertainty, both global and domestic, a very cautious and calibrated approach to easing is called for and the costs of a “policy error” would likely to be large.
“The multi-dimensional implications of a repo rate cut at this time and in the future needs careful evaluation,” he stated.
Stating that food inflation was an important source of uncertainty, which had increased in August from the preceding month, External member Ram Singh said going forward, the moderation in headline inflation could be unsteady in the near term due to adverse base effects.
“Food inflation is expected to moderate later this financial year because of strong kharif and rabi sowing on top of adequate buffer stocks. Adverse weather events, however, remain un-insurable risks to food inflation,” Prof. Singh said.
“Considering all these factors, there is a case for remaining vigilant about food inflation and, at the same time, supporting growth,” he added.
According to internal member Rajiv Ranjan there are enough evidence to give confidence that MPC was on the right track.
“Our cautious and calibrated approach has paid off. Monetary policy is working well to contain inflation. Going ahead, there is now greater confidence on inflation aligning with the target unless disrupted significantly by weather events and worsening of geo-political risks,” he said.
“We also need to keep a close watch on global commodity prices, especially food and metal prices, which have shown some signs of hardening,” Dr. Ranjan added.
Published – October 23, 2024 08:17 pm IST
