RBI worried rise in consumer prices could threaten inflation target

Mumbai: Worry that rising consumer prices will threaten the Indian central bank’s inflation target of 4 per cent led the majority of the Reserve Bank of India’s monetary policy committee to vote to keep rates steady, according to minutes issued on Wednesday.

Committee members also said at their October 4 meeting they expected that a slowdown in economic growth to its lowest in more than three years in the April-June quarter could prove transitory, and it was prudent to wait for more evidence.

“It is important to recognise near-and medium-term risks to the inflation outlook,” RBI Governor Urjit Patel said, according to the minutes of the meeting.

“There is a need for more data to assess whether the recent headwinds in overall GDP growth prints are transient or sustained.”

The RBI’s six-member monetary policy committee voted 5-1 to keep the repo rate unchanged at the on October 4 meeting after inflation in August surged to 3.36 per cent from a year earlier - not far off the central bank’s 4 percent target.

However, data after the meeting showed inflation held steady at 3.28 per cent in September, in line with a downwardly revised number for August, although analysts said they expected the repo rate to remain unchanged for now.

Michael Patra, an executive director of the RBI, reiterated a call made earlier in the year that the central bank even needed to be ready to raise rates, according to the minutes.

“It is time to be in readiness to raise the policy rate to quell the underlying drivers of inflation if they strengthen further,” Patra said.