Mumbai: India cannot risk another bout of inflation and the best approach at this stage would be to remain flexible and wait for more evidence of inflation aligning durably with the target said the Reserve Bank of India (RBI) governor Shaktikanta Das while voting to keep the repo rate unchanged but changing the stance from withdrawal of accommodation to ‘neutral’ revealed the minutes of the October policy meeting on Wednesday.
All the six members of the Monetary Policy Committee (MPC) of the RBI on October 9 had voted to change the stance signaling the central bank's readiness to ease monetary policy if inflation continues its downward trajectory. However, one member Nagesh Kumar had also voted for a 25-bps rate cut. Repo rate, the rate at which the central bank lends to commercial banks was kept unchanged at 6.5 per cent marking the tenth consecutive time the rate has remained steady. The RBI has maintained a status quo on benchmark interest rates since April 2023. The last hike of 25 basis points in policy rate was done in February 2023.
Das said that the Indian economy presents a picture of stability and strength. The balance between inflation and growth is well-poised. Despite the near-term uptick in inflation, the outlook for headline inflation towards the later part of the year and early next year points to further alignment with the 4 per cent target. Das said that a change in monetary policy stance to neutral would provide space to watch out for the uncertainties on the horizon – ranging from heightened geo-political tensions and volatile commodity prices to risks of adverse weather in food inflation.
He said that the momentum in food prices continues even in the first week of October which, if sustained, is likely to keep even October headline inflation high. Beyond the short-term, however, the outlook for food inflation is becoming more favourable with improvement in kharif and rabi season prospects. Core inflation, in absence of a major cost-push shock, is likely to remain contained on continuing transmission of past monetary policy actions. These considerations have resulted in inflation projection of 4.5 per cent for 2024-25.
“Monetary policy can support sustainable growth only by maintaining price stability,” said Das.
Michael Patra, RBI deputy governor, said that while the persistence of inflationary pressures could dissipate with a less restrictive stance of monetary policy, "reducing restraint too quickly may negate the progress made on disinflation".
India's retail inflation in September accelerated to its highest in nine months at 5.49 per cent, due to higher food prices, data released after the MPC meeting showed. The central bank targets inflation at 4 per cent.
External member Nagesh Kumar was of the view that inflationary expectations have been successfully anchored, and industrial demand in
both domestic as well as export markets is flagging, a rate cut could help to revive demand and help boost private investment.
