RBI panel favours rate hike to tame inflation

NEW DELHI: Most members of the Monetary Policy Committee (MPC) raised concern over uncertainty around both growth and inflation, but kept their focus on taming inflation, the minutes of the MPC meeting showed.

The minutes of the meeting which were released on Friday showed that while most members favoured an increase in repo rate by 50 basis points or more, Dr Ashima Goyal was in favour of only a 35 bps hike. The RBI on 30 September 2022 announced 50 bps hike in repo rate, the short-term rate at which RBI lends to banks.

Dr Ashima Goyal made an impassioned argument in favour of a 35 bps rate hike as she opined that a 50 bps rise just to preserve a spread with US policy rates would be an over-reaction driven by fear. “..if lagged effects of monetary policy are large, as in India, overreaction can be very costly,” she warned while reminding that taking repo rates too high imposed heavy costs in 2011, 2014 and 2018, when credit and investment slowdown was aggravated (due to high repo rates),” she said in her statement.

Prof Jayant R Varma, who sees the terminal repo rate at 6.25-6.5%, was in favour of a front-loaded hike of 60 bps but ultimately voted for a 50 bps hike. Deputy governor of RBI Dr Michael Debabrata Patra was also in favour of more forceful tightening of monetary policy.

He said front-loading of monetary policy actions can keep inflation expectations firmly anchored, and also cut the medium-term growth sacrifice associated with steering inflation back to target. Governor Shaktikanta Das in his remarks said though economic activities were steadily improving, there were mixed signals on the growth front.