Is MPC doing enough on inflation? Consumers are divided

While top ministers have pressed for lower interest rates, the central bank governor has pointed to the risks of cutting rates early. Meanwhile, do regular consumers think the RBI is doing enough? In its first readers’ survey, Mint found that Indians are divided over the MPC’s handling of inflation.

35% of close to 1,000 respondents voted that the committee has not been successful in managing inflation, while nearly 30% supported the committee’s actions so far. (The rest were unsure.)

The survey was held in the second half of November, and Mint readers were asked to vote online. Hence, the findings are not representative of the population. Almost 66% of them were salaried individuals.

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The survey findings come at a time when the six-member rate-setting panel is expected to keep the repo rate unchanged for the eleventh consecutive time this week, notwithstanding the plunge in September quarter growth to 5.4%.

Nearly half of the total respondents surveyed favoured lower inflation and higher interest rates, and only 22% support the reverse. While the calls for a rate cut have turned louder, MPC is not expected to cut rates before February next year.

Governor Shaktikanta Das has repeatedly warned since the last policy that cutting rates at this juncture is “very very risky and premature" due to emerging risks to inflation outlook. Das’ words proved prescient as costlier vegetable prices tipped retail inflation (CPI) for October to beyond RBI’s threshold limit of 6%.

While MPC’s decision not to cut interest rates may not align with the government’s wish, it seems to be in line with popular demand. Nearly 80% of respondents said the inflation was high to very high. Only 2% of the respondents rated inflation as low or very low.

When asked how prices had risen for a given set of items, 64% said "everything", while 16% said so for food.

Nearly half of the respondents said the biggest impact of rising interest rate has been on home loans. That said, one in every four persons also said higher interest rates helped them earn more on their deposits.

Despite their dissatisfaction with rising inflation, 43% of the respondents said India has managed inflation well in context of the global price surge.

The MPC has been trying to tame inflation since supply disruptions in the wake of the covid outbreak kept inflation above the 6% upper tolerance band for three consecutive quarters. The Ukraine war also pushed up global commodity prices, keeping inflation beyond RBI's target.

Failure to bring inflation within the target of 2-6% on three consecutive occasions had forced the committee to write to the government giving its explanation.

To be sure, MPC responded by changing its stance from 'accommodation' to 'withdrawal of accommodation' and hiking rates. The government, meanwhile, worked on supply side measures by tweaking import duty on several products, including farm goods, in addition to restricting exports of some items.

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In April this year, Das likened inflation to an elephant in the room that went out for a walk; in October, he described it as a horse which had to be kept on a tight leash, when it eased to below 5%.

In the last policy, MPC eased its policy stance to ‘neutral’, raising hopes of a December rate cut. But the latest inflation number of 6.2% in October does not provide any respite for the MPC to start cutting rates just yet.

While the MPC has been persistent in the war on inflation, these measures may not be enough to satisfy salaried individuals facing the brunt of rising inflation and lending rates.