'Rationale for easing monetary policy in the current situation is misleading', Governor Das said in the MPC meeting
MPC Minutes: On August 8, the Reserve Bank of India (RBI) announced to keep the benchmark interest rate unchanged for the ninth consecutive time. The central bank had said that it cannot afford to see a situation of high food inflation continuously and has to be cautious to prevent it from rising.
The monetary policy committee of the Reserve Bank of India sees the current policy rate, or the so-called repo rate, at 6.5 percent as broadly within the neutral range and any immediate action of cutting the policy rate may be misconstrued. In the view of Governor Shaktikanta Das, expressed while voting for the status quo in the repo rate during the MPC meeting, two members of the Monetary Policy Committee, however, recommended a rate cut during the meeting. Now the MPC that determines the policy rate met on August 6-8.
The RBI had said on August 8 that it proposed to keep the benchmark interest rate unchanged for a ninth straight time. The central bank had expressed its apprehension, saying that it cannot afford to see a situation of persistently high food inflation and has to remain vigilant to prevent it from rising. As per the minutes of the last MPC of the RBI, released on Thursday, calibrated increases of 250 basis points in the policy repo rate since May 2022, besides a change in stance to withdrawal of rate adjustments, was pulling the inflation down as compared to that in 2022-23.
The MPC minutes quoted Das as saying, "Keeping in mind the 4.5 percent headline inflation for 2024-25, the current repo rate is broadly in balance and continues to support domestic economic activity."
He said that when we are moving towards the goal of bringing down inflation, the justification for any decision to increase or decrease policy rates may be illusory. He also said that inflation is gradually coming down, but the pace is slow and uneven. Inflation is yet to be brought down to the target of 4 percent.
During the MPC meeting, Ashima Goyal and Jayant R Varma were in favor of a 25 basis point cut in the repo rate. The third external member of the MPC, Shashank Bhide, voted in favor of keeping the repo rate at the current rate of 6.5% along with the other three members (all RBI officials) - Das, Rajiv Ranjan, and Michael Debabrata Patra.
