Mumbai: While a repo rate hike in June looks imminent, the Reserve Bank of India’s rate-setting panel would not be as aggressive as the US Federal Reserve in hiking rates, if one goes by the minutes of the April 6-8 monetary policy meeting.
The central bank will have to constantly re-assess the “dynamic and fast-changing situation” and tailor its actions accordingly, RBI governor Shaktikanta Das said during the recent meeting of the Monetary Policy Committee (MPC) which decided to maintain the status quo on key interest rates.
While risks to domestic growth warrant continued monetary policy accommodation, the minutes revealed that almost all members of India’s monetary policy committee felt the rising inflationary pressures have necessitated an action.
“While the risks to domestic growth call for continued accommodative monetary policy, inflationary pressures necessitate monetary policy action. The circumstances warrant prioritising inflation and anchoring of inflation expectations in the sequence of objectives to safeguard macroeconomic and financial stability, while being mindful of the ongoing growth recovery. There is also a need to avoid undue disruptions in the financial markets,” Das said.
“Given this delicate balance between inflation and growth, I vote for retaining the repo rate at four per cent and maintaining the accommodative stance while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth. The situation is dynamic and fast-changing, and we should constantly reassess the situation and tailor our actions accordingly,” said Das.
“The minutes of the April meeting is consistent with the final MPC statement. I guess all of the members are saying the same thing that broadly there is an acceptance that inflation is looking tricky, specifically the outgoing,” said RBI executive director and MPC member Mridul K. Saggar.
The central banker further said that core inflation will be six per cent or higher for this current fiscal.
It doesn’t seem that they are in a mood to rapidly hike interest rates like the Federal Reserve or other central banks, said G. Ananth Narayan, associate professor at SP Jain Institute of Management and Research.
“So yes, a June rate hike is a possibility but the market is pricing a two per cent rate hike over the next one year (repo rate to rise from four per cent to six per cent during the same time next year). But by reading the minutes I don’t get the sense that the MPC has pencilled in so many rate hikes at all, maybe 50-100 basis points,” he explained.
The six-member Monetary Policy Committee (MPC) of the RBI in its first bi-monetary policy of the current fiscal on Friday, while keeping key rates unchanged, sounded more hawkish and signalled a calibrated removal of accommodation in this fiscal going forward.
“The policy will still stay accommodative as rates, even after lifting nominal rates, will stay below real neutral rate for foreseeable future,” RBI executive director and MPC member Mridul Saggar said at the meeting, according to the minutes.
