Growth can’t be sacrificed in repressing inflation: RBI's monetary policy committee

NEW DELHI: RBI’s Monetary Policy Committee (MPC) members, though remain vigilant of the inflation pressure, have not lost sight of the fact that growth can’t be sacrificed in repressing inflation, the minutes of the MPC meeting show. 

The panel took solace from the fact that inflation would start coming down from the second half of the financial year. Most members barring Prof Jayant Varma were of the view that a total 90 basis points increase in two months (40 basis points in May and 50 basis points in June) would be sufficient for now to keep the menace of inflation at check. Prof Varma, like always, was the lone dissenter and pointed out that 90 basis points raise has been neutralised by a 100 basis points increase in inflation estimate for 2022-23.

“At the current stage of recovery, the one-year ahead real rate must not be more negative than -1%. A fifty or sixty basis point hike would achieve this,” said Ashima Goyal in her comments, adding that such a real interest rate, while not dampening the recovery much, will prevent a possibly inflationary further rise in demand and unsustainable current account deficit.

Dr Rajiv Ranjan in his comments said that while frontloading the hike in interest rate, it should be remembered that the pace of policy transmission has quickened after the introduction of the external benchmark-based lending rates (EBLR) in October 2019, and the, therefore, the 90 basis points increase in the last two MPC meetings should have better-desired results of the policy changes than before.

Michael Debabrata Patra laid stress on the direction of the inflation rather than its level. “If headline inflation starts moving down in the second half, the objective of taking the policy rate above the level of future inflation will be achieved sooner than later, providing space to pause and reconfigure,” he said in his submission. Shakti Kanta Das, the RBI governor, was more focused on the pre-pandemic level of policy rate and liquidity.