The Reserve Bank of India’s Monetary Policy Committee meetings are minutes are out and going by the views expressed by the members, the committee is firm on first taming inflation before talking about growth. In the monetary policy statement, Reserve Bank of India (RBI) Governor Shaktikanta Das had reiterated the central bank’s inflation target of 4%, emphasizing that it was not within the 2-6% tolerance band.
According to the minutes of the meeting, Das stressed on the monetary policy remaining actively disinflationary. Other members have stressed on the need for policy action to be data-dependent and thus any clarity may emerge only in the next policy meeting in December, dashing the rate-cut hopes built by several brokerages.
Here’s what the MPC members had to say about inflation in the minutes.
Shaktikanta Das
Domestic economic growth is maintaining the momentum. Our fundamental goal is to align inflation with the 4.0 per cent target and anchor inflation expectations. Recurring incidences of large and overlapping supply side shocks bring with them the risks of generalisation of inflation impulses, possible loss of monetary policy credibility and de-anchoring of inflation expectations. Monetary policy has to remain extra alert and ready to act, if the situation warrants. The hard earned macroeconomic stability has to be preserved.
Going forward, inflation outlook continues to be beset with uncertainties, especially from adverse weather events, the playout of El Niño conditions, uncertainties in global food and energy prices and volatility in global financial markets. Inflation expectations of households – both three months and a year ahead – have, however, moved together to single digit for the first time since the COVID-19 pandemic. In this situation monetary policy must remain actively disinflationary to ensure that ongoing disinflation process progresses smoothly.
Michael Patra
Inflation prints for September and October will need to be monitored carefully to look out for the moderation that our projections anticipate. If we tame inflation durably, we will prepare the ground for a long innings of strong and stable growth. Our projections anticipate that growth will gather positive momentum from the second quarter onwards. Monetary policy can contribute by remaining sufficiently disinflationary without being overly restraining.
DR Rajiv Ranjan
Given that inflation expectations are backward looking in emerging markets including India, occurrences of multiple large adverse supply shocks run the risk of a drift in inflation expectations from underlying trend, which could eventually stall the ongoing disinflation process. Such supply shocks are challenging and test the inflation fighting credibility of central banks. Though transitory relative price changes in the economy that may spur temporary bouts of inflation may be looked through, monetary policy also needs to be watchful to see that large and frequent supply side shocks does not trigger generalised increase in prices. Past such instances in India, as in 2020, do give credence to MPC’s judgement with regard to optimal response to supply shocks with an objective to anchoring inflation expectations, rather than inflation per se. Besides, the sustained fall in core inflation as mentioned earlier vouches for its transitory nature going ahead.
Ashima Goyal
The headline inflation forecast of 5.4 for FY 24 gives a comfortably positive real repo rate. Therefore I vote for a pause in the repo rate, and also vote for the stance on withdrawal of accommodation in order to signal the MPC’s determination to reach its 4% target. This stance rules out a rate cut. It allows a rise but that will not be required unless there are second round effects from the repeated supply shocks. So far there are no signs of such pass through. The guidance therefore is that future moves will be data-dependent.
Shashanka Bhide
The points flagged in the August meeting regarding the global economic conditions and incomplete transmission of the policy rate actions undertaken are still relevant at this juncture. It is necessary to assess the strength of the growth trajectory and inflation outlook in the medium term keeping in view the fact that the projected headline inflation remains above 5 per cent in the final three quarters of the current financial year.
