RBI wants to keep inflation vigil, MPC’s external members see room to ease a bit
interest rates have created the scope for reduction in policy interest rates, said external members of the Monetary Policy Committee, but those from the Reserve Bank of India (RBI) believe that the markets are running ahead of policy makers. Prof. J.R. Varma, who voted for a reduction in the repo rate by a quarter point and a shift in monetary stance to neutral from withdrawal of accommodation, said the economy is not overheating and the MPC needs to send a signal it is living up to its dual mandate on inflation and growth.
“Inflation is projected to average 4.5% in 2024-25, and, therefore, the current policy rate of 6.5% translates into a real rate of 2%,’’ Varma wrote in the minutes of the meeting of the last policy review. “The time has come for the MPC to send a clear signal that it takes its dual mandate of inflation and growth seriously, and that it would not maintain a real interest rate that is significantly more than what is needed to achieve its target.’’
But the members from the central bank led by the governor are a lot more cautious given that behaviour of inflation in the past have caught policy makers on the wrong foot.
“At this juncture, monetary policy must remain vigilant and not assume that our job on the inflation front is over,” said Governor Shaktikanta Das. “We must remain committed to successfully navigating the ‘last mile’ of disinflation which can be sticky. As markets are front-running central banks in anticipation of policy pivots, any premature move may undermine the success achieved
