Monetary policy may remain in tightening mode, but trajectory remains uncertain: RBI Guv

The monetary policy committee is expected to remain in a tightening mode, but there is uncertainty about its trajectory, said Reserve Bank of India (RBI) Governor Shaktikanta Das in the minutes of the latest MPC meeting published on Wednesday.

Slowing the pace of interest rate hikes, the RBI earlier this month raised the repo rate to 6.5%, the highest since 2018, while keeping the option of rate hikes open amid stubborn core inflation.

Das believes a further calibrated monetary policy action is necessary in the current MPC meeting to keep inflation expectations anchored and break the persistence of core inflation while containing second round effects.

The RBI Governor said the MPC should taper the pace of rate hike in view of two considerations:

i) we need to give time for our past policy actions to work through the system; and (ii) it would be premature to pause, lest we are caught off-guard and need to do a catching up later

According to the minutes, Das, who heads the six-member MPC, also said overall, there is considerable uncertainty at this stage on the evolving inflation trajectory due to ongoing geopolitical tensions, global financial market volatility, rising non-oil commodity prices, volatile crude oil prices and also weather-related events.

He noted that the 25 basis points rate increase provides space to calibrate future monetary policy actions and stance based on evolving macroeconomic conditions. 

The RBI Governor added the global economic outlook has improved since the December 2022 meeting of the MPC. “Inflation in major countries has eased in recent prints but remains significantly above their respective targets,” Das further stated.