Cumulative Impact Of Monetary Policy Actions Still Unfolding: RBI Governor In MPC Meeting

RBI Governor Shaktikanta Das, in the rate-setting panel meeting earlier this month, opined that the cumulative impact of the monetary policy actions over the last one year is still unfolding and needs to be monitored closely, as per the MPC minutes released on Thursday.

Das, along with the five other members of the Monetary Policy Committee, voted for a pause in rate hike earlier this month. The central bank, which effected six back-to-back hikes in the key short-term lending rate (repo) since May 2022 to check high inflation, decided to take a pause early this month. The cumulative rate hike since May 2022 is 250 basis points. 

"The cumulative impact of our monetary policy actions over the last one year is still unfolding and needs to be monitored closely," Das said during the last Monetary Policy Committee (MPC) meeting held during April 3-6. Inflation for 2023-24 is projected to soften, but the disinflation towards the target is likely to be slow and protracted. The projected inflation in Q4:2023-24 at 5.2 per cent would still be well above the target, he noted. 

"Therefore, at this juncture, we have to persevere with our focus on bringing about a durable moderation in inflation and at the same time give ourselves some time to monitor the impact of our past actions. Das said, "I am, therefore, of the view that we do a tactical pause in this meeting of the MPC," as per the minutes of the MPC meeting released by the RBI. 

MPC member and RBI Deputy Governor Michael Debabrata Patra said that an ongoing assessment of the macroeconomic outlook should inform a preparedness to re-calibrate monetary policy towards a more restrictive stance with consistent actions, should risks to the inflation trajectory materialise and impede its alignment with the target. 

The process of getting inflation back to target could turn out to be gradual and uneven but the mission of monetary policy is to shepherd this process through potential bumps while containing second-round effects and anchoring inflation expectations, he added.

The government has mandated the central bank to ensure that retail inflation based on the consumer price index (CPI) remains at 4 per cent with a margin of 2 per cent on either side. The retail inflation in March fell to a 15-month low of 5.66 per cent and came back to the Reserve Bank's comfort level of 6 per cent.