MUMBAI: Policy rate hikes could be round the corner, suggest minutes of the RBI’s Monetary Policy Committee (MPC) review early this month.Until recently, the MPC maintained a wait-and-watch approach, with five members voting for status quo and only one pressing the case of rate hikes. However, the April meeting saw at least two members — RBI Deputy Governor Viral Acharya and RBI Executive Director Michael Patra — tilting towards a rate hike in the coming months.
According to Acharya, the risk of oil prices staying elevated is higher than expected due to declining inventories. The growth recovery is durable and the output gap in the economy is closing. “In view of the above referred developments since the last MPC meeting, I have moved substantially closer to switching from the neutral stance to beginning the process of withdrawal of accommodation. This is in spite of the softening of inflation in recent prints,” Acharya noted.
Core inflation rose to a 43-month high, which, according to Patra, could delay the four per cent inflation target, which is unlikely to be met in FY19 without policy action. “The main risks to the achievement of the target are festering in the category of Consumer Index Price excluding food and fuel, in which inflation has stubbornly risen above five per cent over the past three months. Over the course of 2018-19, inflation in this category is expected to peak close to six per cent in June and moderate in the rest of the year to settle at a little above five per cent,” he said.
RBI Governor Urjit Patel said that while inflation has moderated in recent months, several upside risks persist due to uncertainty about the increase in MSP for kharif crop. “Hence, I would like to wait for more data and watch how various risks to inflation evolve, going forward. I, therefore, vote for holding the policy repo rate at the current level and maintaining the stance as neutral,” said Patel.