Inflation vigilance is crucial said Das warns on MPC 2024

Among the six members, five voted to maintain the repo rate at 6.5%, keeping the policy stance unchanged. However, member Jayanth Varma advocated for a 25% reduction in the repo rate and a shift to a neutral stance.

“We must remain committed to successfully navigating the ‘last mile’ of disinflation which can be sticky. As markets are front-running central banks in anticipation of policy pivots, any premature move may undermine the success achieved so far,” he wrote in the minutes.

Also Read: Inflation vigilance is crucial said Das warns on MPC 2024

“Food price uncertainty remains a major source of volatility for headline inflation outlook. Growing geo-political tensions and supply chain disruptions due to new flash points also pose further risks to the inflation outlook,” Das wrote.

The policy imperative at the current juncture, wrote Das, is to remain focused on achieving the 4 per cent inflation target on a durable basis, keeping in mind the objective of growth, he wrote.

Das expressed optimism that the current monetary policy is progressing well, with steady growth and inflation moving towards the target. Despite a rise in headline inflation to 5.1% in January, above the RBI’s 4% target, Das outlined expectations of a softening trend to an average of 4.5% in 2024-25.

Also Read: Inflation vigilance is crucial said Das warns on MPC 2024

“Monetary policy must remain restrictive and maintain downward pressure on inflation while minimising the output costs of disinflation. It is only when inflation subsides and stays close to the target lastingly that policy restraint can be eased,” Patra wrote.

Deputy Governor Michael Patra highlighted persistent food supply pressures hindering disinflation, while external member Varma projected an average inflation of 4.5% in 2024-25. MPC member Ashima Goyal suggested that commodity price shocks might be short-lived, and the expected rise in food prices remains uncertain.

“I do not believe that such a high real rate is required at this stage to drive inflation down to the target of 4 per cent. It is true that economic growth is holding up well, but there is no evidence at all that the economy is overheating,” Varma wrote.

Also Read: Inflation vigilance is crucial said Das warns on MPC 2024

“Then it would not be necessary to keep rates high just because supply shocks are expected in the future. But we can wait to test this for some more time. So, I vote for status quo on rates though headline inflation FY25 projections of 4.5 per cent gives room to cut,” she wrote.

“Avoiding any premature move will help us guard against the biggest challenge to credibility, i.e., having to backpedal later if faced with upside surprises to inflation,” Ranjan wrote.

MPC member Rajiv Ranjan acknowledged the challenges in managing the final phase of inflation’s descent, noting historical tendencies for inflation shocks to persist. External member Shashanka Bhide emphasized the need to focus on achieving the inflation target consistently, given the current elevated food inflation levels and strong overall economic growth.

Also Read: Inflation vigilance is crucial said Das warns on MPC 2024

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