MPC minutes: Rate hike cycle not over, inflation a concern

In the April policy, the rate-setting panel unanimously decided to keep the repo rate unchanged at 6.5 per cent. The RBI has kept the CPI inflation target at 5.2 per cent for fiscal year 2023-24, with Q1 at 5.1 per cent, Q2 at 5.4 per cent, Q3 at 5.4 per cent and Q4 at 5.2 per cent.

Reserve Bank of India Governor Shaktikanta Das wrote in the minutes that inflation for 2023-24 is projected to soften, but the disinflation towards the target is likely to be slow and protracted.

“Our fight against inflation is far from over and we have to continue with our efforts to bring down inflation closer to the target over the medium term,” Das said.

The government has mandated RBI to keep inflation at 4 per cent with a band of 2 per cent either direction.

The RBI Deputy Governor Michael Patra said the future path of inflation is vulnerable to several supply shocks and the MPC must accordingly remain on high alert and ready to act preemptively if risks intensify to both sides of its commitment – price stability and growth. “The process of getting inflation back to target could turn out to be gradual and uneven,” Patra said.

“…because of erratic weather and continuing global uncertainties, and until it is clear that inflation is well on the path to reaching the target, it is necessary to emphasise that this may not be the end of the rate hikes,” Ashima Goyal, one of the three external members of MPC, wrote in the minutes.

External member Jayant Varma said the decision to cut crude output and deficient monsoon may create inflationary pressures. “…it is clear that the war against inflation has not yet been won, and it would be premature to declare an end to this tightening cycle,” Varma said.