RBI Keeps Interest Rates Steady Amid Volatile Food Prices
By Rediff Money Desk, MUMBAI Dec 22, 2023 19:42
The Reserve Bank of India (RBI) maintained the key interest rate at 6.5% due to concerns over volatile food prices and inflation, despite a strong economy.
Mumbai, Dec 22 (PTI) The overall inflation outlook is expected to be clouded because of volatile and uncertain food prices, Reserve Bank Governor Shaktikanta Das said at the recent Monetary Policy Committee meeting.
Governor Das-headed six-member Monetary Policy Committee (MPC), which met on December 6 to 8, unanimously decided the keep the key interest rate (repo) unchanged at 6.5 per cent citing inflationary concerns.
"The overall inflation outlook is expected to be clouded by volatile and uncertain food prices and intermittent weather shocks," the Governor opined, as per the minutes of the meeting released on Friday.
He said that a resurgence of vegetable price inflation is likely to push up food and headline inflation.
"We have to remain highly alert to any signs of generalisation of price impulses that may derail the ongoing process of disinflation," he said.
Das also stressed that in these circumstances, monetary policy has to be actively disinflationary and any shift in policy stance now would be premature and risky.
Deputy governor and MPC member Michael Debabrata Patra too opined that monetary policy has to remain on high alert with a restrictive stance.
"...the monetary policy reaction function needs to assign a higher weight to inflation relative to growth in a forward-looking sense," Patra said, while voting for a status quo on the policy rate and continuing with the stance of withdrawal of accommodation.
RBI executive director and MPC member Rajiv Ranjan said the economy is running at full steam. Growth has been resilient and continuously surprising on the upside.
"It is important to note that for the first time in Q2:2023-24, the fault lines in India's growth story since the pandemic tepid private investment and rural demand seem to be gaining traction," he said.
Ranjan also stressed that the best way monetary policy can support this high growth trajectory is by maintaining its commitment to price stability.
The three government-appointed members on MPC -- Shashanka Bhide, Ashima Goyal and Jayanth R Varma -- too had voted for keeping the rate unchanged. The repo rate has remained at 6.5 per cent since April.
According to the minutes, Bhide said given that inflation remains well above the target over the short term, with the projected headline CPI rate of above 5 per cent up to Q1: 2024-25, there is a need to continue the policy support for sustaining the trajectory to the target.
Goyal opined that if inflation sustainably approaches 4 per cent by the middle of 2024 real rates can easily become too high if nothing is done.
"A repo of 6.5 per cent in 2018 and tight liquidity with headline inflation of around 4 per cent, even though core inflation was around 6 per cent, proved severely deflationary. Both headline and core inflation fell steeply over the next year," she said.
MPC member Varma noted that current indications are that, after many difficult quarters, the economic environment is turning more benign in terms of both inflation and growth.
The challenge for monetary policy is to facilitate this benign outcome where inflation trends down and growth remains robust, he said.
The next meeting of the MPC is scheduled for February 6-8, 2024.
Governor Das-headed six-member Monetary Policy Committee (MPC), which met on December 6 to 8, unanimously decided the keep the key interest rate (repo) unchanged at 6.5 per cent citing inflationary concerns.
"The overall inflation outlook is expected to be clouded by volatile and uncertain food prices and intermittent weather shocks," the Governor opined, as per the minutes of the meeting released on Friday.
He said that a resurgence of vegetable price inflation is likely to push up food and headline inflation.
"We have to remain highly alert to any signs of generalisation of price impulses that may derail the ongoing process of disinflation," he said.
Das also stressed that in these circumstances, monetary policy has to be actively disinflationary and any shift in policy stance now would be premature and risky.
Deputy governor and MPC member Michael Debabrata Patra too opined that monetary policy has to remain on high alert with a restrictive stance.
"...the monetary policy reaction function needs to assign a higher weight to inflation relative to growth in a forward-looking sense," Patra said, while voting for a status quo on the policy rate and continuing with the stance of withdrawal of accommodation.
RBI executive director and MPC member Rajiv Ranjan said the economy is running at full steam. Growth has been resilient and continuously surprising on the upside.
"It is important to note that for the first time in Q2:2023-24, the fault lines in India's growth story since the pandemic tepid private investment and rural demand seem to be gaining traction," he said.
Ranjan also stressed that the best way monetary policy can support this high growth trajectory is by maintaining its commitment to price stability.
The three government-appointed members on MPC -- Shashanka Bhide, Ashima Goyal and Jayanth R Varma -- too had voted for keeping the rate unchanged. The repo rate has remained at 6.5 per cent since April.
According to the minutes, Bhide said given that inflation remains well above the target over the short term, with the projected headline CPI rate of above 5 per cent up to Q1: 2024-25, there is a need to continue the policy support for sustaining the trajectory to the target.
Goyal opined that if inflation sustainably approaches 4 per cent by the middle of 2024 real rates can easily become too high if nothing is done.
"A repo of 6.5 per cent in 2018 and tight liquidity with headline inflation of around 4 per cent, even though core inflation was around 6 per cent, proved severely deflationary. Both headline and core inflation fell steeply over the next year," she said.
MPC member Varma noted that current indications are that, after many difficult quarters, the economic environment is turning more benign in terms of both inflation and growth.
The challenge for monetary policy is to facilitate this benign outcome where inflation trends down and growth remains robust, he said.
The next meeting of the MPC is scheduled for February 6-8, 2024.
DISCLAIMER - This article is from a syndicated feed. The original source is responsible for accuracy, views & content ownership. Views expressed may not reflect those of rediff.com India Limited.
You May Like To Read
TODAY'S MOST TRADED COMPANIES
- Company Name
- Price
- Volume
- Kretto Syscon
- 1.02 (+ 4.08)
- 66881006
- Shree Securities
- 0.45 (+ 12.50)
- 60278969
- Mishtann Foods L
- 9.67 ( -1.73)
- 59217815
- Vodafone Idea L
- 7.87 ( -1.99)
- 45227161
- YES Bank Ltd.
- 21.21 ( -1.71)
- 26456481
MORE NEWS
Dish TV Shareholders Reject Appointment of Ind...
Dish TV shareholders have rejected the proposal to appoint two independent directors,...
India Needs Investment in Roads, Ports, Energy:...
Veteran banker KV Kamath stresses the need for increased investment in roads, ports,...
IGI IPO: Blackstone-Backed Gem Firm Raises Rs...
International Gemmological Institute (IGI) has raised Rs 1,900 crore from anchor...