MUMBAI: The continuing strong growth momentum, coupled with a 7% projection for the current fiscal, has forced the Reserve Bank-led rate setting panel to vote 5:1 to maintain status quo on the rates front for the seventh consecutive time.
These factors have given the monetary policy committee (MPC) the needed policy space to “unwaveringly focus on price stability”, according to the minutes of the 47th meeting of the panel earlier this month, released by the Reserve Bank on Friday.
At the April 3-5 meeting, five of the six panel members voted for the status quo on policy rates as well to maintain the withdrawal of accommodation stance citing the hardening food prices, which are likely to further roil price stability, going forward, amid the heatwave conditions in most parts of the country and also the election related higher spends.
The Reserve Bank has been maintaining a status-quo on the repo rate at 6.5 percent since February 2023 on concerns over inflation which could not be contained to the targetted 4 percent with a 2 percentage point leeway either side even once since the MPC was set up in April 2017.
“The gains in disinflation achieved over the past two years have to be preserved and taken forward towards aligning the headline inflation to the 4 percent target on a durable basis,” Das told the panel, according to the minutes released on Friday by the central bank. Five of the six MPC members had voted for status quo in the policy rate and policy stance.
The only dissenting member was Jayanth Varma, who wanted a 25 bps reduction in the repo rate as “high interest rates entail a growth sacrifice”. The six members of the MPC are the governor Das who is the chairman, deputy governor Michael Patra, Shashanka Bhide of the National Council of Applied Economic Research, Ashima Goyal, Jayanth Varma of IIM-Ahmedabad; and Rajiv Ranjan, an executive director of RBI. Deputy Governor Patra said headline inflation can be expected to remain in the upper reaches of the tolerance band until favourable base effects come into play in the second quarter of 2024-25.
Ranjan said while monetary policy seems to be on the right track, it is too early to ease guard against inflation. Goyal said global trade seems to be recovering but growth is mixed, and geopolitical risks continue.