The Reserve Bank of India's rate-setting panel's successive meetings where they promise to withdraw accommodation but end up keeping rates unchanged does not enhance its credibility, external member of the MPC Jayanth Varma said at its latest meeting, per minutes released Friday.
"I would much prefer a stance in which words are consistent with the actions," Varma said while reiterating his view on the stance adopted by the Monetary Policy Committee (MPC).
"Moreover, at this point of time, the guidance that the market really needs is not about how high the terminal repo rate would be, but about how long the rate would be maintained at a high level. It would therefore be useful for the MPC to communicate its intention to keep real interest rates high enough for as long as is necessary to drive projected inflation close to the 4% target on a sustainable basis," Varma added.
The RBI's MPC in its latest meeting voted to keep the key lending rate steady for a fourth consecutive policy meeting, in line with analysts' expectations. It has raised rates by 250 basis points (bps) since May 2022 in a bid to cool surging prices.
India's retail inflation eased to a three-month low in September owing to softer vegetable prices, but remained above 4 per cent median target. Food inflation, which accounts for nearly half of the overall consumer price basket, rose 6.56% in September as compared with 9.94% in August.
Varma in the minutes said that the changes in the outlooks for both inflation and growth are quite modest. "...and the real repo rate is already quite high. I, therefore, support the decision to keep repo rate unchanged. In my view, the real interest rate based on projected inflation is high enough to glide inflation towards the target within a reasonable period," he said.
On the growth front, Varma said that the outlook has modestly improved owing to increasing consumer confidence, as indicated by RBI’s surveys. Consumers’ willingness to consume at the cost of reduced savings, as seen in recent RBI data, is important as it is household consumption that has been propping up in the economy, Varma said.
This comes at a time when the economy faces headwind from fiscal consolidation, weak external demand and tepid capital investment.
“It is possible that this consumer confidence could become a self fulfilling prophecy as robust consumption demand stimulates growth, generates income and strengthens household balance sheets. Even if that does not happen, global experience suggests that a debt fuelled consumption boom can last several years before petering out,” Varma said.
“Either way, the medium term growth outlook looks somewhat stronger than it did during the last meeting, though several headwinds still remain,” Varma added.
Source Name : Economic Times