New Delhi: Governor Shaktikanta Das said at the Monetary Policy Committee (MPC) meeting that the Reserve Bank of India’s (RBI) fight against inflation is not over yet, according to the minutes of the meeting. The MPC met on April 3, 5 and 6 this year and decided to freeze the repo rate at 6.50 per cent.
In his remarks at the MPC meeting, Das said the cumulative effect of the monetary policy actions of the past year is still unfolding and needs to be closely monitored. ,Also read: Saket Apple Store was a six-month project, hundreds of laborers were engaged in its completion,
Inflation is projected to soften for 2023-24, but deflation towards the target is likely to be slow and prolonged. He added that the projected inflation in Q4:2023-24 at 5.2 per cent would still be much higher than the target.
“Hence, at this juncture, we have to focus our attention on bringing about a durable moderation in inflation and at the same time, give ourselves some time to monitor the impact of our past actions. Let’s make a strategic pause in the meeting,” Das said and voted for a pause in the rate action.
He also said the focus is on a return to accommodation to ensure that inflation gradually aligns with the target while supporting growth.
“It is a strategic pause and not a pivot or a change in policy direction,” Das said.
The MPC in its recent meeting decided to keep the policy repo rate under the Liquidity Adjustment Facility (LAF) unchanged at 6.50 per cent.
The standing deposit facility (SDF) rate remained unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
While supporting growth, the MPC decided to focus on a return to accommodation to ensure that inflation progressively aligns with the target.
Arguing for a pause, Ashima Goyal, emeritus professor at Indira Gandhi Institute of Development Research, Mumbai, said inflation forecast for FY24 at 5.2 per cent, Q4 at 5.2 per cent, implies repo rate at 6.5 per cent that the actual policy rate is higher. than one.
“Barring other complementary policies and large new shocks, it has already tightened enough to progressively bring inflation closer to the 4 percent target. At present it is best to avoid further increases in real interest rates as higher real rates are a may trigger a non-linear switch to a lower growth path,” Goyal said.
Goyal and Prof. Jayant R. Verma, Professor, Indian Institute of Management, Ahmedabad was against the repo rate hike in the recent MPC meetings.
In the April meeting of the MPC, Verma said he did not understand the meaning of the word ‘stance’ – withdrawal of accommodation.
“Turning to the stance, I must admit that I fail to understand its meaning. My colleagues at the MPC have assured me that the language is clear to market participants and others. It may well be that I am the only person who finds it difficult to understand,” said Verma.
“But I am unable to reconcile the language of the stance with the simple fact that no more ‘roll back accommodation’ is due as the repo rate has already been raised to the level of 6.50 per cent prevalent at the start of the last easing. Feb. cycle in 2019. It is certainly possible to tighten further, but it will not be a ‘return to accommodation’ by any stretch of the imagination,” Verma said.