Members of the Monetary Policy Committee (MPC) of the RBI, which completed its four-year term, have expressed disappointment over the elevated inflation saying it is “undermining the MPC’s actions” to revive growth and mitigate the impact of COVID-19 on the economy which is expected to record its “deepest contraction” in history.
“I have been advocating a more cautious path for policy rate reductions since February 2019. However, I have been in a minority in the MPC. Inflation has now been above the upper band of 6 per cent for a number of months,” MPC Member Chetan Ghate said in his note, according to the minutes of the MPC meeting held on August 6. Notwithstanding large rate cuts to spur growth over the last year and a half, growth has steadily declined despite 250 basis points (bps) in cuts since February 2019. “Future MPCs should not go soft on inflation,” Ghate said in his parting shot.
Reserve Bank of India (RBI) Deputy Governor and MPC Member Michael Patra said, “Disappointingly, inflation surprises of recent months are undermining the MPC’s actions and stymieing its resolve to do what it takes to revive growth and mitigate the impact of COVID-19 on the economy.” The MPC kept repo rate at 4 per cent in August.
MPC Member Ravindra Dholakia said although the present circumstances are truly exceptional, the primary mandate given to MPC for inflation targeting at 4 per cent with the upper tolerance limit of 6 per cent has to be respected. Although there is headroom for further monetary policy action, at this juncture it is important to keep our arsenal dry and use it judiciously, RBI Governor Shaktikanta Das. A new MPC is likely to be constituted before the next policy review on October 1.
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