MPC Minutes: Food Inflation Risks Elevated, Conditions Not in Place for Let-Up in Restrictive Policy Stance, Says RBI Dy Guv
The latest Monetary Policy Committee (MPC) meeting minutes reveal a cautious stance from the Reserve Bank of India (RBI) members, highlighting persistent concerns over food inflation and external risks that could disrupt the disinflation process. Despite these challenges, the committee expresses confidence in the current policy direction, emphasizing the importance of maintaining a restrictive monetary policy stance to ensure inflation targets are met.
According to Michael Debabrata Patra, the elevated risk of food inflation is a significant concern. “Recent inflation prints and high frequency data on salient food prices indicate that food inflation risks remain elevated. A relatively shallow and short-lived winter trough is giving way to a build-up of price momentum as summer sets in, with forecasts of rising temperatures up to May 2024,” he mentioned in the minutes. These conditions, coupled with firming global food prices and other influential factors, suggest that headline inflation in India might linger in the upper limits of the RBI’s tolerance band of 2-6% until the second quarter of FY25.
The minutes underscore the necessity of adhering to a restrictive monetary policy stance. Patra remarked, “Hence, conditions are not yet in place for any let-up in the restrictive stance of monetary policy. Downward pressure on inflation must be maintained until a better balance of risks becomes evident and the layers of uncertainty clouding the near-term clear away.” This approach reflects the priority to manage inflation expectations and ensure economic stability amid uncertain conditions. March saw retail inflation drop to 4.85% from February’s 5.09%, yet high food prices continue to drive inflation above the RBI’s median target of 4%.
Shaktikanta Das, RBI Governor, pointed out that while inflation may moderate to 4.5% in FY25 according to projections, vulnerabilities from supply-side shocks and lingering geopolitical tensions necessitate cautious monetary policy actions. “Tread the last mile of disinflation with extreme care,” he emphasized, signaling the delicate balance the RBI aims to maintain between supporting growth and containing inflationary pressures.
Despite these inflationary concerns, Das remains optimistic about the Indian economy’s growth prospects, highlighting strengthening rural demand, rising consumer confidence, and a turnaround in private consumption among the positive factors supporting economic expansion.
The MPC, in its latest review, held the key interest rate steady at 6.5% for the seventh consecutive session, aiming to keep a tight rein on inflation as anticipated by market analysts. Moreover, the RBI has maintained its growth and inflation forecasts for the current fiscal year at 7% and 4.5%, respectively, indicating a balanced outlook on India’s economic trajectory amidst prevailing risks.
The minutes of the MPC meeting shed light on the RBI’s cautious yet hopeful perspective amidst fluctuating economic indicators. The committee’s commitment to maintaining a restrictive monetary policy stance underscores its proactive approach to steering the economy towards sustainable growth, with inflation control as a central pillar of its strategy.
