Monetary Policy Committee Members Stay Cautious on Elevated Food Inflation Risks
Mumbai: India’s strong growth momentum is giving the central bank the policy space to unwaveringly focus on price stability which inturn would help set the foundation for a period of high growth, wrote the Reserve Bank of India (RBI) Shaktikanta Das in the minutes of the April policy meeting released on Friday.
“The strong growth momentum, together with our GDP projections for 2024-25, give us the policy space to unwaveringly focus on price stability. Price stability is our mandated goal and it sets strong foundations for a period of high growth. Accordingly, I vote to keep the policy repo rate unchanged and continue with the focus on withdrawal of accommodation”, said Das.
Majority of the RBI's rate setting panel expressed caution on upside risks to inflation, particularly emanating from uncertainties in food prices, at the panel's policy review, showed the minutes.
The Monetary Policy Committee (MPC) of the RBI on April 5 kept the policy repo rate unchanged at 6.5 per cent for the seventh consecutive time and continued its withdrawal of accomodation stance. The repo rate is the rate of interest at which the central bank lends to banks.
Michael Debabrata Patra, deputy governor of RBI said that the recent inflation prints and high frequency data on salient food prices indicate that food inflation risks remain elevated. He said that headline inflation could 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. He said that the commitment to enduringly aligning inflation with the target of 4 per cent needs to be emphasised. “Stabilising inflation expectations is progressing, as reflected in forward-looking surveys; anchoring them is crucial for achieving the inflation target,” added Patra.
On the same lines, another MPC member Rajiv Ranjan said that while low core inflation would further the disinflation process, concerns remain on food inflation outlook. “We need to remain watchful on upside risks to inflation outlook from adverse climatic factors, supply side shocks and geopolitical events,” said Ranjan showed the minutes.
India's retail CPI inflation dipped to 4.85 per cent in March from 5.09 per cent in February. Rising food prices have been the main driver of India’s inflation, which remains well above the RBI’s 4 per cent median target. The RBI has retained its inflation projection for FY25 at 4.5 per cent and GDP at 7 per cent. The RBI has hiked policy rates by 250 basis points between May 2022 and February 2023, since then it has kept the repo rate unchanged at 6.5 per cent. Economists said that the likelihood of rate cuts or change in stance are increasingly being pushed forward to the third quarter of FY25.
