Any Premature Monetary Policy Move May Undermine RBI’s Efforts On Inflation: Governor Shaktikanta Das

The Reserve Bank of India’s (RBI) job to bring down inflation is not over, and any premature move on the policy front could undermine the success achieved so far, according to RBI Governor Shaktikanta Das.

According to the minutes of the February Monetary Policy Committee (MPC) meeting released on Thursday, Das had said that at this juncture, monetary policy must remain vigilant and “not assume that our job on the inflation front is over”.

While voting for status quo in the key interest rate earlier this month, Das said the MPC must remain committed to successfully navigating the ‘last mile’ of disinflation which can be sticky.

“As markets are front-running central banks in anticipation of policy pivots, any premature move may undermine the success achieved so far. Price and financial stability are essential to sustain a long haul of high growth,” he said, according to the minutes.

On the inflation outlook, he said inflation is expected to soften further to an average of 4.5 per cent in 2024-25 with a fleeting trough of 4 per cent in Q2. Food price uncertainty remains a major source of volatility for the headline inflation outlook. Growing geo-political tensions and supply chain disruptions due to new flash points also pose further risks to the inflation outlook.

Five of the six MPC members had voted to keep the short-term benchmark lending rate at 6.5 per cent.

External member in the MPC, Jayanth R Varma, had made a case to reduce the repo rate by 25 basis points, and to change the stance to neutral.

The process of fiscal consolidation is projected to continue in 2024-25, he said, adding that this opens up space for monetary easing without risking an inflationary spiral.

“In my view, the time has come for the MPC to send a clear signal that it takes its dual mandate of inflation and growth seriously, and that it would not maintain a real interest rate that is significantly more than what is needed to achieve its target,” Varma said.

RBI Deputy Governor and MPC member Michael Debabrata Patra, according to the minutes, said monetary policy must remain restrictive and maintain downward pressure on inflation while minimising the output costs of disinflation.

It is only when inflation subsides and stays close to the target lastingly that policy restraint can be eased, he had said.