Our fight against inflation is not yet over: RBI Governor

The Monetary Policy Committee’s mission is only half completed, after I brought economic inflation Within the target range, according to Reserve Bank of India Ruler Shaktikanta Das.

“Our fight against inflation is far from over,” Das said at the Monetary Policy Committee meeting, which took place on June 6-8.

The MPC’s objective is to achieve the medium-term target for CPI inflation of 4 percent within the +/- 2 percent range, while supporting growth.

MPC minutes

On Thursday, the Reserve Bank of India released the minutes of the Monetary Policy Committee meeting, in which the members unanimously decided to maintain The policy’s buyback rate was unchanged at 6.50 percent. All members were on the same page about aligning inflation with the 4 per cent target.

The Monetary Policy Committee also decided by a majority of 5 out of 6 members regarding the decision to continue focusing on withdrawing residency to ensure that inflation is gradually in line with the target while supporting growth.

Varma, a professor at the Indian Institute of Management, Ahmedabad, expressed reservations about this part of the decision.

He said it would be premature to declare victory at this point in time based on inflation data for only two months (March-April).

In this context, I am not at all comfortable with the self-congratulatory tone of the statement in the MPC’s Monetary Policy Statement that “the MPC noted a moderation in headline CPI inflation in March-April to a tolerant range, in line with expectations, which reflects the combined effect to monetary tightening and oversupply measures,” Varma said.

He added that the main reason for not objecting (and expressing reservation only) is that after two consecutive meetings in which the buyback rate has not changed, this position now seems more impactful than a serious statement of intent.

Michael Debabrata Batra, Deputy Governor, noted that the near-term outlook for inflation is relatively benign compared to the experience of 2022-2023.

However, after the first quarter, pressure points from a specific supply-demand mismatch could further pressure price momentum and offset favorable fundamental effects, especially in the second half of 2023-2024.

Hence, monetary policy must remain in a “straightforward” mode, to ensure that the effects of these shocks are dissipated without leaving scars on the economy.

“Accordingly, my vote to maintain the status quo on the policy rate should be seen as taking the middle stump guard to prepare for a bouncy court,” Batra said.

He stressed that keeping the rate unchanged should not be interpreted as the interest rate cycle having peaked but as a period of careful evaluation of a decision on how much further policy tightening should be, if necessary.