RBI MPC Minutes: Job on inflation front not over, ‘last mile’ of disinflation can be sticky; 5 key highlights
- The RBI at its last bi-monthly monetary policy committee meeting on February 8 decided to keep the benchmark interest rate (repo rate) unchanged at 6.5 per cent citing inflationary concerns.
The Reserve Bank of India (RBI) released the minutes of the Monetary Policy Committee (MPC) meeting on Thursday, February 22, highlighting that the policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission.
The MPC will carefully monitor any signs of generalisation of food price pressures to non-food prices which can fritter away the gains in the easing of core inflation. Geopolitical events and their impact on supply chains, and volatility in international financial markets and commodity prices are key sources of upside risks to inflation, said the central bank in its statement.
The RBI at its last bi-monthly monetary policy committee (MPC) meeting on February 8 decided to keep the benchmark interest rate (repo rate) unchanged at 6.5 per cent citing inflationary concerns. Five members including Dr. Michael Debabrata, Shashanka Bhide, Ashima Goyal, and Rajiv Ranjan voted for status quo on the policy rate for the sixth consecutive time, while Jayanth R Varma voted to reduce the policy repo rate by 25 basis points.
RBI MPC Minutes: Here are the five key highlights-
1.Job on inflation not over, ‘last mile’ of disinflation sticky: RBI Governor
RBI Governor Shaktikanta Das said that the current setting of monetary policy is moving in the right direction, with growth holding firm and inflation trending down to the target. ‘’At this juncture, monetary policy must remain vigilant and not assume that our job on the inflation front is over. We must remain committed to successfully navigating the ‘last mile’ of disinflation which can be sticky,'' said Das.
As markets are front-running central banks in anticipation of policy pivots, any premature move may undermine the success achieved so far. Price and financial stability are essential to sustain a long haul of high growth. Policy imperative at the current juncture is to remain focused on achieving the four per cent inflation target on a durable basis, keeping in mind the objective of growth, explained Das.
2.MPC to monitor food prices to manage core inflation
On the inflation front, large and repetitive food price shocks are interrupting the pace of disinflation that is led by the moderation of core inflation. ‘’Food price uncertainty remains a major source of volatility for headline inflation outlook. Growing geo-political tensions and supply chain disruptions due to new flash points also pose further risks to the inflation outlook,'' said Shaktikanta Das.
India's inflation trajectory would be shaped by the evolving food inflation outlook. ‘’Effective supply side responses may keep food price pressures under check. The continuing pass through of monetary policy actions and stance is keeping core inflation muted,'' said the central bank in its statement.
3. Manufacturing sector, private capex to support growth in 2024
The central bank said in its statement that the recovery in rabi sowing, sustained profitability in manufacturing and underlying resilience of services should support economic activity in 2024-25.
Among the key drivers on demand side, household consumption is expected to improve, while prospects of fixed investment remain bright owing to upturn in the private capex cycle, improved business sentiments, healthy balance sheets of banks and corporates, and government’s thrust on capital expenditure, according to the RBI.
The MPC noted that domestic economic activity is expected to be backed by the momentum in investment demand, optimistic business sentiments and rising consumer confidence. The improving outlook for global trade and rising integration in global supply chain will support net external demand. The headwinds from geopolitical tensions, volatility in international financial markets and geo-economic fragmentation, however, pose risks to the outlook.
4.Global economy resilient amid geopolitical risks
Global growth is likely to remain steady in 2024 after a surprisingly resilient performance in a turbulent year gone by. Inflation is edging down from multi-decade highs, with intermittent upticks. Financial market sentiments have been fluctuating with changing views about an early pivot by central banks in advanced economies (AE).
The likelihood of lower interest rates has spurred rallies in equity markets, although uncertainty about the timing of interest rate reduction is reflected in bidirectional movements in the US dollar and sovereign bond yields. Emerging market economies are facing currency fluctuations amidst volatile capital flows, said the central bank in its statement.
‘’Geopolitical risks continue but neither have oil prices risen as much as feared nor has global growth slowed as much as expected. As inflation approaches their target, AE central banks have announced rate cuts in 2024 as they recognize a further rise in real interest rates as inflation falls would be an over-correction and nuanced actions are required for a soft landing. Some emerging market CBs have already cut rates,'' said Dr Ashima Goyal.
5.Inflation, GDP forecasts for 2024
The real gross domestic product (GDP) growth for 2024-25 is projected at 7.0 per cent with Q1 at 7.2 per cent; Q2 at 6.8 per cent; Q3 at 7.0 per cent; and Q4 at 6.9 per cent. ‘’Private consumption, which accounts for 57 per cent of GDP, is languishing under the strain of still elevated food inflation. This is particularly telling in rural areas. Inflation has to be restrained to its target for growth to be inclusive and sustained,'' said Dr. Michael Debabrata Patra.
The retail inflation is projected at 5.4 per cent for 2023-24 with Q4 at 5.0 per cent. Assuming a normal monsoon next year, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 5.0 per cent; Q2 at 4.0 per cent; Q3 at 4.6 per cent; and Q4 at 4.7 per cent, according to the central bank.
The next meeting of the MPC is scheduled during April 3 to 5, 2024.
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Business NewsEconomyRBI MPC Minutes: Job on inflation front not over, ‘last mile’ of disinflation can be sticky; 5 key highlights
First Published:22 Feb 2024, 05:59 PM IST
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