One member differs with panel on ‘easy’ stance; urges ‘hard look’, rise in rates

RBI Governor Shaktikanta Das said the economy still requires support in terms of maintaining congenial financial conditions and fiscal boosters. “At such a critical juncture, can we really pull the rug and the let the economy tumble?” Das said, according to the minutes of the MPC meeting. “The need of the hour is twofold: first, continue the monetary policy support to the economy; and second, remain watchful of any durable inflationary pressures and sustained price momentum in key components so as to bring back the CPI inflation to 4 per cent over a period of time in a non-disruptive manner.”

However, taking a different view, Varma — who voted against the accommodative stance — said “easy money today could lead to high interest rates tomorrow”.

“In the last several meetings, my statements have expressed the belief that the balance of risk and reward is in favour of monetary accommodation. As the pandemic continues to mutate, it appears to me that the balance of risk and reward is gradually shifting, and this merits a hard look at the accommodative stance,” he said, as per the minutes.

Unveiling the bi-monthly monetary policy, the RBI panel raised the projection for retail inflation to 5.7 per cent for FY22 from 5.1 per cent earlier, quite close to its upper tolerance limit in the 2-6 per cent band. The MPC left the repo rate unchanged at 4 per cent while retaining the accommodative stance. It retained the FY22 real GDP growth at 9.5 per cent.

As per the RBI minutes, Varma was “not in favour of the decision to keep the reverse repo rate at 3.35 per cent,” and voted against the accommodative stance.

While the economy is struggling to regain the momentum that had gathered in the second half of 2020-21, the highest priority now is to revive growth along a sustainable trajectory that becomes compatible with the inflation target as the pandemic recedes, RBI Deputy Governor Michael Patra said.