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Informist, Wednesday, Oct. 23, 2024

 

NEW DELHI - The Reserve Bank of India's Monetary Policy Committee changed its stance on Oct. 9 to neutral from withdrawal of accommodation as it gained greater confidence that the monetary policy is on the "right track", minutes of the Oct. 7-9 meeting showed.

 

"...there are enough evidence to give confidence that we are on the right track. Our cautious and calibrated approach has paid off. Monetary policy is working well to contain inflation," RBI Executive Director Rajiv Ranjan said in his statement, released Wednesday. Governor Shaktikanta Das added that despite the increase in the near term, the outlook for CPI inflation "towards the later part of the year and early next year points to further alignment with the 4% target".

 

Minutes of MPC meetings are released with a lag of 14 days.

 

On Oct. 9, the committee decided by 5 votes to 1 to leave the repo rate unchanged at 6.50% for the 10th meeting in a row, although it unanimously loosened the stance of policy to neutral. The change in stance had sparked hopes of the MPC cutting the repo rate for the first time in four-and-a-half years at its next meeting in December. However, developments since then--CPI inflation rose more than expected to a nine-month high of 5.49% in September and Das warned at an event last week that a rate cut at the current juncture would be premature and risky--have led to markets pushing their rate cut calls to February and beyond.

 

The minutes, written at the time of the MPC's meeting, however, offered comfort on the inflation front, with Deputy Governor Michael Patra saying that the inflation path is "reconfiguring towards the target in the baseline forecast, by my metric of four quarters ahead inflation". The external members, too, shared the view, with Saugata Bhattacharya saying inflation is "projected to be trending towards the target and is eventually likely to durably align with it". Nagesh Kumar, who was the only member of the committee to vote for a rate cut, said lower interest rates were needed to "revive demand and help boost private investment".

 

Despite the apparent comfort, members of the MPC continued to call for caution on prices, with Governor Das saying "another bout of inflation" could not be risked at the current stage of the economic cycle. Patra also called for vigilance, saying that "reducing restraint too quickly may negate the progress made on disinflation".

 

"Hence, a gradual wait-and-assess approach to removing policy restraint in terms of the policy rate remains appropriate as long as inflation is not lastingly close to its target," the central bank deputy said. Ram Singh, meanwhile, warned about the challenge posed by food prices, saying "adverse weather events...remain un-insurable risks to food inflation".  End

 

Reported by Siddharth Upasani

Edited by Vandana Hingorani

 

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