The uncertainties around India's inflation outlook for the second half of the ongoing fiscal have not abated and several factors including El Nino, geopolitical conflicts and volatile financial markets need to be monitored closely, said Reserve Bank of India's governor Shaktikanta Das in the MPC minutes released on Thursday.
He stressed that the rate-setting panel opted for a pause in the latest meeting to assess the impact of the 250 bps cumulative hike taken in the meetings so far over the last year.
The Reserve Bank of India (RBI) kept its key lending rate steady for a second straight meeting on June 8, as widely expected, but signalled monetary conditions will remain tight for some time as it looks to further curb inflationary pressures.
"Monetary policy is now dangerously close to levels at which it can inflict significant damage to the economy," external member Jayant Varma wrote in the minutes published by the RBI.
Ashima Goyal, another external member, said inflation is falling as expected, and it is important to ensure the real repo rate does not rise too high and damage the economic cycle.
"Commitment to such a regime (inflation targeting) only involves aligning the nominal repo rate with expected inflation. It does not require the nominal repo to be kept higher for longer," she wrote.
However, all three internal members of the RBI continued to focus on the upside risks to inflation and reiterated that the pause in June was only for the specific policy and future rate actions would depend on evolving macroeconomic data.
"Beyond the first quarter, however, pressure points emanating from specific supply-demand mismatches could impart upward pressure to the momentum of prices and offset favourable base effects, especially in the second half of 2023-24," wrote Michael Patra, deputy governor at the RBI.
"Hence, monetary policy needs to remain in 'brace' mode, ensuring that the effects of these shocks dissipate without leaving scars on the economy."
The monetary policy committee (MPC), which has three members from the RBI and three external members, kept the repo rate steady at 6.50% in an unanimous decision, at its latest meeting.
India has raised rates by 250 basis points (bps) since May 2022, but surprised analysts in April by keeping them unchanged.
Despite hitting an 18-month low of 4.70% in April, analysts do not expect India's inflation to fall to the Reserve Bank of India's (RBI) 4% medium-term target in a sustainable manner for some time.
Source Name:-Economic Times