Need to preserve success on inflation control on durable basis, RBI guv at MPC

Mumbai: The success in controlling inflation has to be preserved and taken forward to achieve a 4 per cent inflation target on a durable basis, RBI Governor Shaktikanta Das stressed during the MPC meeting even as other members expressed concerns over the impact of geo-political developments on the price situation. The Reserve Bank on Friday released the minutes of the Monetary Policy Committee (MPC) meeting on Friday. It maintained status-quo on the benchmark lending rate (repo) at 6.5 per cent since February 2023 on concerns over inflation after the three-day MPC meeting held from April 3 to 5. Five of the six MPC members voted for the status quo in the policy rate. MPC member Jayanth R Varma, however, advocated a reduction in the repo rate by 25 basis points as "high-interest rates entail a growth sacrifice".

According to the minutes, Das said the economic growth prospects of the Indian economy in 2024-25 look bright. He further said the baseline projections show inflation moderating to 4.5 per cent in 2024-25 from 5.4 per cent in 2023-24 and 6.7 per cent in 2022-23. "This success in the disinflation process should not distract us from the vulnerability of the inflation trajectory to the frequent incidences of supply-side shocks, especially to food inflation due to adverse weather events and other factors," the governor said. He stressed that the gains in disinflation achieved over the last two years have to be preserved and taken forward, towards aligning the headline inflation to the 4 per cent target on a durable basis. "The strong growth momentum, together with our GDP projections for 2024-25, give us the policy space to unwaveringly focus on price stability. Price stability is our mandated goal and it sets strong foundations for a period of high growth," Das said while voting for keeping the policy repo rate unchanged.

He also said lingering geo-political tensions and their impact on commodity prices and supply chains are also adding to uncertainties in the inflation trajectory. Shashanka Bhide, Ashima Goyal, and Jayanth R Varma are external members, while RBI Governor Shaktikanta Das, Deputy Governor Michael Debabrata Patra, and Executive Director Rajiv Ranjan are from the central bank. Deputy Governor Patra said headline inflation can be expected to remain in the upper reaches of the tolerance band until favourable base effects come into play in the second quarter of 2024-25. "Hence, conditions are not yet in place for any let up in the restrictive stance of monetary policy," he opined.

Rajiv Ranjan said while monetary policy seems to be on the right track, it is too early to ease guard against inflation. MPC member Ashima Goyal said that global trade seems to be recovering but growth is mixed, and geopolitical risks continue. Inflation has come down substantially, but further progress is slow, she noted. Shashanka Bhide was of the opinion that food inflation trends would remain crucial to sustaining the movement of the headline inflation closer to the policy target of 4 per cent on a durable basis. The next meeting of the MPC is scheduled for June 5-7.