MUMBAI: Arguing for a pause in rate hikes, RBI governor Shaktikanta Das said in the minutes of the monetary policy committee (MPC) meeting that the fight against inflation is “far from over” and there was a need to focus on the withdrawal of accommodation. These statements by the governor are seen as an indication that the RBI may choose to control rates through the money market rather than through revisions in the benchmark. The RBI’s position is similar to the stance taken by the US Federal Reserve that tighter credit conditions would do some of the work for the monetary authority.
“We think the two most hawkish members of the MPC through the current cycle — governor Das and deputy governor Michael Patra — remain relatively hawkish, focusing on the pause in the cycle and not stop, given the war against inflation needs to continue,” said Barclays Bank chief economist Rahul Bajoria. External member Jayanth R Varma, however, said he could not agree with the committee’s decision on ?withdrawal of accommodation’. “I cannot put my name to a stance that I do not even understand. At the same time, it is clear that the war against inflation has not yet been won, and it would be premature to declare an end to this tightening cycle,” said Varma. He added that he was refraining from dissenting on this part of the resolution and was only expressing his reservations. Taking a tough stance, Patra said that inflation was inimically harmful to growth and that elevated inflation is now beginning to hurt growth as well. He called upon the MPC to be unwavering in its resolve.
RBI member Rajiv Ranjan said earlier rate increases have not been fully passed on to consumers. “This is a ‘wait and watch’ pause. It is neither a ‘premature’ pause nor a ‘permanent’ one. Not ‘premature’ because we have already increased the policy rate by 250bps (100 basis points = 1 percentage point) in about a year with front-loaded rate action of about 190bps during the first 5 months. Not ‘permanent’ as any durable decline in inflation towards the target of 4% is still distant,” he said.
“We think the two most hawkish members of the MPC through the current cycle — governor Das and deputy governor Michael Patra — remain relatively hawkish, focusing on the pause in the cycle and not stop, given the war against inflation needs to continue,” said Barclays Bank chief economist Rahul Bajoria. External member Jayanth R Varma, however, said he could not agree with the committee’s decision on ?withdrawal of accommodation’. “I cannot put my name to a stance that I do not even understand. At the same time, it is clear that the war against inflation has not yet been won, and it would be premature to declare an end to this tightening cycle,” said Varma. He added that he was refraining from dissenting on this part of the resolution and was only expressing his reservations. Taking a tough stance, Patra said that inflation was inimically harmful to growth and that elevated inflation is now beginning to hurt growth as well. He called upon the MPC to be unwavering in its resolve.
RBI member Rajiv Ranjan said earlier rate increases have not been fully passed on to consumers. “This is a ‘wait and watch’ pause. It is neither a ‘premature’ pause nor a ‘permanent’ one. Not ‘premature’ because we have already increased the policy rate by 250bps (100 basis points = 1 percentage point) in about a year with front-loaded rate action of about 190bps during the first 5 months. Not ‘permanent’ as any durable decline in inflation towards the target of 4% is still distant,” he said.
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