Reserve Bank of India RBI Governor Shaktikanta Das said at this month’s Monetary Policy Committee meeting that the country cannot afford another rise in inflation. He said the best approach right now would be to adopt an accommodative stance and wait for inflation to sustainably align with the central bank’s target. He stated this when voting in favor of keeping the policy rate unchanged at the meeting held from October 7 to 9 of this month. According to the minutes of the Monetary Policy Committee (MPC) meeting released on Wednesday, Das said, “Monetary policy can sustainably support economic growth only by maintaining stability in the level of prime prices.”
5 out of 6 members voted in favor
At the meeting, the MPC decided to keep the key repo rate at 6.5 percent for the 10th consecutive time. Of the six members, five voted in favor and one voted in favor of reducing it. However, the committee unanimously decided to change its stance to neutral by withdrawing its previous liberal stance. This was the first meeting of the MPC after its reconstitution. The three newly appointed external members are Ram Singh, Saugata Bhattacharya and Nagesh Kumar. According to the minutes of the meeting, Das said monetary policy can sustainably support economic growth only by maintaining price stability.
voted for a neutral position
“All things considered, I vote in favor of changing the current stance to ‘neutral’ by keeping the benchmark rate unchanged at 6.5 per cent,” Das said, saying overall the Indian economy is stable and showing an image of strength. There is a balance between inflation and growth. Despite a pick-up in inflation in the short term, headline inflation is expected to remain around the four percent target at the end of the year and early next year, he said. “Overall, conditions are ripe for a shift from an accommodative stance to a neutral monetary policy stance,” Das said. This will bring greater flexibility and options at the monetary policy level to act in accordance with the emerging outlook. It also provides scope to monitor uncertainties arising from rising global tensions and fluctuations in commodity prices.
Repo rate won’t decrease anytime soon
Echoing similar views, RBI Deputy Governor Michael Debabrata Patra had said that until inflation permanently moves closer to the target, it would be appropriate to adopt a wait-and-test approach with respect to the policy rate. They voted to maintain the status quo on official rates, but moved to a neutral position at the meeting. Another member, RBI CEO Rajiv Ranjan, had said that between now and December, things will become clearer on some uncertainties. These uncertainties include the US elections, global risks and Chinese fiscal stimulus and global commodity prices.
The help comes from the country’s strong growth history.
Ranjan had said, “Right now, India’s strong growth story helps us continue to focus on inflation and keep the policy rate at 6.5 per cent. Therefore, I will vote to change the status quo and stance on the policy rate to neutral.” External member Nagesh Kumar voted in favor of reducing the repo rate by 0.25 per cent. He said this is an opportune time for the RBI to begin the process of normalization of monetary policy. The other two external members of the reconstituted MPC, Saugata Bhattacharya and Ram Singh, also voted in favor of keeping the policy rate unchanged. However, he said the stance will change to neutral.
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