According to the minutes of the Reserve Bank of India’s August policy meeting, which was made public on Friday, most of the committee’s members supported front-loading rate increases to bring inflation within the 2-6per cent target range and lessen the need for sudden rate rises in the future.
“Actions are aimed towards first lowering inflation within the target zone and then pushing it near to the target of 4% over the medium term while sustaining GDP,” said Governor Shaktikanta Das. Actions will be measured, agile, and calibrated depending on the situation.
The RBI raised the repo rate by 50 basis points to 5.4per cent on August 5 while maintaining its commitment to withdrawing monetary policy accommodation.
According to MPC member Jayant Varma, the monetary policy committee’s decision should be read as highly likely to more front-loaded tightening.
Varma, the lone panellist who opposed keeping the position, claimed that “removal of accommodation” should “simply” “be rejected since it indicates that the committee’s primary goal is to raise the repo rate to 6.5per cent.
Withdrawal of accommodations since the rate increase in this meeting raises the policy rate above its pre-epidemic level “cannot be used to refer to the accommodation provided during the pandemic. It can only signify the termination of the pre-pandemic accommodations, which started when the tariff was lowered from 6.50per cent to 6.25per cent in February 2019. The clear implication of this resolution is that MPC wants to return the repo rate to 6.50per cent.
A terminal repo rate of 6.50per cent, in my opinion, is completely unnecessary given the current circumstances, “said Varma. The resolution, in my opinion, should only be taken as indicating that there is a high possibility of additional front-loaded tightening without limiting the ability of MPC to react to the changing environment in a data-driven manner, “Added he.