RBI releases minutes of MPC meet: Key highlights from the latest policy

The Reserve Bank of India monetary policy committee (MPC) met during February 6-8, 2023. The meeting was attended by all the members – Shashanka Bhide, Ashima Goyal, Jayanth R. Varma, Rajiv Ranjan, Michael Debabrata Patra, and was chaired by the Governor Shaktikanta Das.

The central bank increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.50 per cent.

Here are the key highlights from the policy meet:

- The MPC members voted on the resolution to increase the policy repo rate to 6.50% in a ratio of 4:2. “Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to increase the policy repo rate by 25 basis points. Dr. Ashima Goyal and Prof. Jayanth R. Varma voted against the repo rate hike,” said the RBI statement.

- The MPC decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth. “Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth. Dr. Ashima Goyal and Prof. Jayanth R. Varma voted against this part of the resolution -The next meeting of the MPC is scheduled during April 3, 5 and 6, 2023,” said the statement.

- The outlook for inflation is mixed. While prospects for the rabi crop have improved, especially for wheat and oilseeds, risks from adverse weather events remain. The global commodity price outlook, including crude oil, is subject to uncertainties on demand prospects as well as from risks of supply disruptions due to geopolitical tensions.

- Domestic demand has been sustained by strong discretionary spending. Urban demand exhibited resilience as reflected in healthy passenger vehicle sales and domestic air passenger traffic

- The overall liquidity remains in surplus, with average daily absorption under the LAF increasing to ₹1.6 lakh crore during December-January from an average of ₹1.4 lakh crore in October-November.

-RBI survey of consumer confidence conducted in January 2023, reflects improvement in one-year ahead expectations buoyed by expectations of higher spending, improved general economic conditions, employment and income, said Shashanka Bhide.

- Excessive front-loading of rate hikes carries the risk of over-shooting that is best avoided for compelling reasons in the Indian context: First, raising real policy rates to reduce demand has a stronger effect on growth than it does on inflation. Second, since there are more lags in monetary transmission in India, over-shooting can have persistent deleterious effects here, including instability. Third, macroeconomic stability improves most rapidly if real interest rates are kept smoothly below growth rates and counter external shocks, said Ashima Goyal.