The minutes of the monetary policy meeting on Thursday revealed that the Reserve Bank of India has refrained from cutting interest rates thus far because it fears that frequent shocks to food prices will undermine its efforts to permanently reduce inflation.
The Monetary Policy Committee decided to hold off on raising interest rates until inflation declines stably, voting five to one to halt for the sixth consecutive review and maintain its position on "withdrawal of accommodation."
Governor Shaktikanta Das stated, "Monetary policy must remain vigilant and not assume that our job on the inflation front is over." "We have to stay dedicated to completing the sometimes difficult "final mile" of disinflation."
Despite a three-month drop in retail inflation in January, price increases are still significantly higher than the central bank's 4% objective because of fluctuating food prices.
Approximately half of the consumer price basket, or 8.30%, was accounted for by food inflation in January, down from 9.53% in December.
Large swaths of the nation are experiencing warmer-than-normal weather, which could harm crops and keep prices higher. India has already restricted wheat, sugar, and most types of rice exports, as well as tightly enforced laws against hoarding, in an effort to control expenses ahead of the elections in a few months.
The prognosis for the Indian economy is still quite vulnerable to inflationary pressures, according to Deputy Governor Michael Patra, and maintaining price stability is crucial. "Policy restraint can only be eased when inflation declines and persistently remains near the target," said Patra. Voting against the rate change and attitude, Jayanth Rama Varma stated that monetary policy should allow the economy to expand further because there is no indication that it is overheating.
He said, "It is now imperative for the MPC to make it known that it takes seriously its dual mandate of growth and inflation." Varma supported taking a neutral approach and cutting the buyback rate by 25 basis points.
