Hyderabad:In its monetary policy committee meeting held early this month, the Reserve Bank of India, decided to keep the benchmark interest rate – the repo rate unchanged, despite dissent notes by two of six members of the committee. As per the minutes of the meeting released Thursday, the reason appears to be sticky high food inflation that is not leading to interest rate cuts by the Reserve Bank despite demand from some quarters that a rate cut is needed to support the economic growth.
Under the Reserve Bank of India Act of 1934, the Reserve Bank is tasked with maintaining the retail inflation in the country as per a target band set by the government under the law while supporting the economic growth. However, it is a difficult task as the measures taken by the RBI to tackle the inflation such as restricting money supply adversely impact the economic growth and striking a delicate balance between the two is a difficult task for any central bank.
As per Section 45ZL of the RBI Act, the Bank is required to publish minutes of its money policy committee meeting, which includes the resolution adopted, the vote of each member and the statement of each member of the committee in the said meeting.
The minutes showed that out of the six members, Ashima Goyal and Jayanth R Varma voted against maintaining the status quo while four other members including the RBI Governor Shaktikanta Das and Dy Governor Michael Debabrata Patra, who is also in charge of monetary policy of the bank, voted in favour of maintaining the status quo.
In his statement, RBI Governor Das, who also chairs the monetary policy committee meetings, observed that though the inflation is gradually trending down, the pace is slow and uneven.
Das said durable alignment of inflation to the target of 4.0 per cent is still some distance away. Persistent food inflation is imparting stickiness to headline inflation and inflation expectations need to be kept anchored.
He also expressed his fear of persistently high food inflation spilling over to the core inflation (inflation excluding food and fuel), saying it has to be avoided.
"At such a crucial juncture, steady growth impulses are allowing monetary policy to unambiguously focus on supporting a sustained descent of inflation to the target," said RBI Governor Shaktikanta Das.
While three other members, RBI Dy Governor MD Patra, Shashank Bhide, and Rajiv Ranjan supported the view taken by the Shaktikanta Das also voted in favour of maintaining the status quo, two other members Ashima Goyal and Jayanth R Varma disagreed.
Dr Ashima Goyal, observed that though the food inflation has risen in the country but the heat wave has had less than the expected effect. In her note she observed that a rise in the vegetable prices was transient in nature and it was already correcting with the good monsoon and the supply chains seem to be improving.
"Since Indian inflation is not well measured, and could be over or under-estimated, too much precision with regard to a target is unproductive,” she said in her note while disagreeing with the majority view to maintain the status quo.