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Business News/ Economy / MPC minutes: Rate hike needed to avoid much stronger action in June, says Das
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MPC minutes: Rate hike needed to avoid much stronger action in June, says Das

Das said the policy meeting and rate hike was needed to avoid much a stronger action in the June MPC meeting.

File Photo of RBI Governor Shaktikanta Das (Reuters)Premium
File Photo of RBI Governor Shaktikanta Das (Reuters)

Reserve Bank of India (RBI) governor Shaktikanta Das said an off-cycle policy meeting was necessary to avoid losing much time while war related inflationary pressures accentuated, according to the minutes of the monetary policy released Wednesday.

Das said the policy meeting and rate hike was needed to avoid much stronger action in the June MPC meeting.

To contain inflation going out of control, Reserve Bank has raised its key lending rate off record lows at an off-cycle meeting earlier in May. Markets see the Reserve Bank of India hiking its key rates further in the coming months as inflation remains elevated.

Consumer prices continued to rise in April with inflation galloping to eight-year high of 7.79%, increasing pressure on Reserve Bank to consider more rate hikes in the coming days.

Meanwhile, deputy governor Michael Patra said geopolitical spillovers have thrust a surge in the momentum of inflation India can ill afford.

"Globally, stagflation could be transitioning from a risk scenario to a baseline scenario. The stagflationary shock is global but everywhere it is being exacerbated by country-specific factors in a synchronised way. The still raw scars of the pandemic will become even more excruciating to bear and more lasting," he said.

Another MPC member Prof Jayanth Varma said it is now imperative to front-load the rate action to the extent possible.

In a strongly worded note, Jayanth Varma said the reason for which majority of MPC favoured 40 basis points hike is not clear.

"It appears to me that more than 100 basis points of rate increases needs to be carried out very soon. My preference therefore is for a 50 basis points increase in the repo rate in this meeting. The majority of the MPC is in favour of 40 basis points for reasons which are not very clear to me," Varma said.

"Whatever symbolic or psychological benefit there may be from keeping the hike below 50 basis points is outweighed by the simplicity and clarity of moving in round multiples of 25 basis points. Also reducing the hike by 10 basis points now would require an extra 10 basis point hike at some point (and perhaps sooner rather than later). Nevertheless, I have thought it fit not to dissent on this issue as the optimal rate hike is not something that can be calculated with mathematical precision, and 40 basis points is not materially different from 50 basis points. I am thankful to the majority for not making my decision more difficult by choosing a 37.5 basis point hike (exactly mid-way between 25 and 50)," he said.

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Published: 18 May 2022, 05:13 PM IST
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