MUMBAI: With the economy still facing inflationary pressure, a premature pause in monetary policy action would be a costly policy error, said Reserve Bank of India (RBI) Governor Shaktikanta Das during the Monetary Policy Committee (MPC) meeting.
Das was among the five MPC members that voted for a 35 basis points (bps) hike in the repo rate. Jayant Verma had voted against a hike, showed the minutes of the meeting released on Wednesday. “A premature pause in monetary policy action would be a costly policy error at this juncture.
Given the uncertain outlook, it may engender a situation where we may find ourselves striving to do a catch-up through stronger policy actions in the subsequent meetings to ward off accentuated inflationary pressures,” said the Governor. “I, therefore, vote for an increase of 35 basis points in the repo rate – a departure from 50 bps on three previous occasions – which itself conveys the signal of an improvement in the inflation outlook,” he added.
The MPC had hiked the repo rate, the rate at which the central bank lends short-term funds to banks, by 35 bps to fight inflation. Prior to the December hike in the repo rate, the RBI had raised the repo rate by 190 bps in four tranches. “Considering the prevailing policy repo rate, liquidity conditions and the expected trajectory of inflation over the next several months, it is essential to persist with the stance of withdrawal of accommodation,” the governor said.
The Governor said that successive rate actions since May 2022 are working through the system. Considering the elevated inflation levels, especially the stickiness in core inflation, further calibrated monetary policy action is warranted to contain build-up in underlying inflationary pressures, keep inflation expectations anchored, and bring inflation closer to the target rate of 4 per cent over the medium term.
“This would strengthen the medium-term growth prospects of the Indian economy,” he said. Of the total six MPC members, five had voted in favour of the rate hike while Jayant Verma voted against it. The meeting was held during December 5-7.