NEW DELHI: The minutes of the Monetary Policy Committee meeting show members of the committee remain cautious of the underlying inflationary pressure despite the recent moderation. Members are worried about inflation being above the RBI’s tolerance level of 6 per cent, and any slack in policy response might raise questions on the credibility of RBI’s inflation targeting mandate. The MPC at its meeting from August 3 to 5 had decided to raise the benchmark lending rate by 50 bps to 5.40 per cent.
Ashima Goyal in her statement said that inflation is still above the tolerance band, and shows signs of being so for the first three quarters of 2022-23. This can be destabilizing for inflation expectations.
While recommending a 50 basis point increase in repo rate, Goyal batted for a strong policy response to ensure its inflation commitments are important for the credibility of an inflation targeting regime.
She said that despite a recent moderation in inflation, a rise in GST tax rates, electricity tariffs, energy costs and rupee depreciation, although the rupee is showing signs of mean reversion towards real equilibrium values, are short-term risks for inflation. Dr Jayant Varma was of the opinion that inflation is at unacceptably high levels, and the projected trajectory is also above target during the entire forecast horizon.
Reserve Bank Governor Shaktikanta Das said the policy actions of the central bank “would continue to be calibrated, measured and nimble depending upon the unfolding dynamics of inflation and economic activity.” Das, according to the minutes of the MPC meeting released on Friday, said retail inflation was “unacceptably and uncomfortably” high, as he along with other members proposed a 50 bps hike in repo rate.