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Business News/ Economy / RBI MPC Minutes: Inflation ruling above tolerance band, monetary policy to remain disinflationary

RBI MPC Minutes: Inflation ruling above tolerance band, monetary policy to remain disinflationary

RBI MPC Minutes: The rate-setting panel noted that headline inflation is ruling above the tolerance band and its alignment with the target is getting interrupted. Hence, the monetary policy needs to remain actively disinflationary, said the central bank

Reserve Bank of India (File Image) Photo: Aniruddha Chowdhury/MintPremium
Reserve Bank of India (File Image) Photo: Aniruddha Chowdhury/Mint

The Reserve Bank of India (RBI) released the minutes of the Monetary Policy Committee (MPC) meeting on Friday, October 20, highlighting that India's headline inflation is ruling above the tolerance band and its alignment with the target is getting interrupted. Hence, the central bank's monetary policy needs to remain actively disinflationary, according to the MPC minutes.

The MPC observed that the unprecedented food price shocks are impinging on the evolving trajectory of inflation. ‘’Accordingly, the MPC resolved to remain on high alert, given the prevailing environment of elevated global food and energy prices and global financial market volatility,'' said the central bank in its statement.

The RBI at its last bi-monthly monetary policy committee (MPC) meeting on October 6 decided to keep the benchmark interest rate (repo rate) unchanged at 6.5 per cent citing inflationary concerns. All six members including M D Patra, Shashanka Bhide, Ashima Goyal, Jayanth R Varma and Rajiv Ranjan voted for status quo on the policy rate for the fourth consecutive time.

The MPC had also decided to remain focused on withdrawal of accommodation - with five out of six members voting in favor, to ensure that inflation progressively aligns to the target, while supporting growth.

The near-term inflation outlook is expected to improve on the back of vegetable price correction and the recent reduction in liquified petroleum gas (LPG) or cooking gas prices. ‘’The future trajectory will be conditioned by a number of factors such as lower area sown under pulses, dip in reservoir levels, El Niño conditions and volatile global energy and food prices,'' said the RBI.

Declining core inflation a silver lining, MPC to remain extra alert: RBI Governor Shaktikanta Das

The RBI Governor noted that against the backdrop of a challenging global environment, domestic economic activity in India has exhibited resilience, with growth projected at 6.5 per cent during 2023-24. The private sector investment is gathering pace with easing input cost pressures, he added.

‘’India is poised to become the new growth engine of the world backed by its strong domestic macroeconomic fundamentals and buffers. The judicious policy mix pursued during the recent years to deal with multiple and unparalleled shocks has fostered economic stability,'' said Das.

However, the heightened inflationary pressures during July-August, following the spike in vegetables prices, has again shown that headline inflation remains vulnerable to recurring and overlapping food price shocks, according to Das.

In September, retail inflation eased sharply to 5.02 per cent, coming within the RBI's tolerance band of 4 - 6 per cent, core inflation dipped to 4.7 per cent - the lowest since February 2020. ‘’Even as headline inflation experienced considerable volatility, a silver lining has been the declining core inflation, supported by declining cost push pressures and ongoing transmission of past monetary policy actions,'' said Das.

RBI's fundamental goal is to align inflation with the 4 per cent target and anchor inflation expectations. The cumulative policy repo rate hike of 250 basis points is still working its way through the economy. So, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent, but with preparedness to undertake appropriate and timely policy actions, if the situation warrants.

‘’Monetary policy has to remain extra alert and ready to act, if the situation warrants. The hard earned macroeconomic stability has to be preserved,'' added the RBI Governor.

Also Read: India's GDP growth seen at 6.5% despite global headwinds, inflation to moderate: Key highlights from RBI MPC Minutes

Inflation faces price pressures, near-term prints to be monitored: MPC Members

Broadly, MPC members agreed that even though the sharp increase in prices during July-August, now appears transitory, the pressures on price conditions still remain. Price pressures are likely to hurt headline inflation and near-term inflation prints need to be monitored carefully to look out for the moderation.

“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," said Dr. Michael Debabrata Patra, RBI Deputy Governor.

MPC members noted that if the inflation projections of 5.2 per cent in Q4 2023-24 and 4.3 per cent in Q4 2024- 25 hold, the alignment of inflation to the target could be underway. But, there is still a need to guard against risks from recurring weather related events and rise in global energy prices.

‘’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,'' said Dr. Shashanka Bhide.

While most of the MPC members agreed on the current stance, Prof. Jayanth R. Varma voiced reservations. Successive meetings that promise to withdraw accommodation while actually keeping rates unchanged do not enhance the credibility of the MPC, according to Prof Varma.

‘’I would much prefer a stance in which words are consistent with the actions. Moreover, at this point of time, the guidance that the market really needs is not about how high the terminal repo rate would be, but about how long the rate would be maintained at a high level,'' said Prof. Varma.

‘’It would therefore be useful for the MPC to communicate its intention to keep real interest rates high enough for as long as is necessary to drive projected inflation close to the 4 per cent target on a sustainable basis,'' added Varma.

The next meeting of the MPC is scheduled during December 6-8, 2023.

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Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at
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Published: 20 Oct 2023, 05:22 PM IST
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