MPC Minutes: MPC has continued to guide progress for a very long time: MPC member Jayant
On May 4, Reserve Bank of India (RBI) Governor Shaktikant Das announced that the MPC had unanimously approved raising the benchmark repo rate by 40 bps as it identified a “near-term inflation outlook risk” due to the war between Russia and Ukraine. And other external developments.
“Some of the symbolic or psychological benefits that come from having a hike below 50 basis points are surpassed by the simplicity and clarity of running in a roundabout of 25 basis points. It will also need an additional 10 basis points increase at some point to reduce the growth by 10 basis points now, ”Verma said.
“It seems to me that the rate increase of more than 100 basis points needs to be done very soon.” Verma preferred a 50 bps increase at the May 2-4 meeting. “The reasons why most of the MPCs are in favor of 40 basis points are not very clear to me,” Verma commented in the MPC minutes.
“I am grateful to the majority for not making my decision any more difficult by choosing a 37.5 basis point hike (just between 25 and 50).”
Headline CPI inflation in April stood at an 8-year high of 7.8% year-on-year, peeping analysts’ forecasts due to higher food and fuel and mild inflation. While food inflation reached a 17-month high of 8.4% YoY, fuel and light inflation stood at 10.8% compared to 7.5% YoY in the previous month.
According to Dr Michael Debabrata Patra, the reversal of ‘extraordinary accommodation’ by the MPC was the right move in the current situation.
“Once this is done, we will reach a stage of neutral housing – as opposed to habitat during the Great Depression – from which responses can be calibrated at a later stage,” he said.
“Going forward, we should focus on housing withdrawal to ensure that inflation stays within the target while supporting growth. I, therefore, vote to maintain the status quo in the April policy position, ”said Governor Das.
In a minutes of the previous meeting, MPC Verma said it was important for the panel not to issue any progress guidelines that would tie their hands as the situation was uncertain. In the minutes of the May meeting, Verma noted that despite this, most of the comments made by analysts at the April meeting seem to be interpreting the phrase “maintain permission” as a position.
“I hope that in the near future, the intentions of the MPC will be made clearer, but if not, the MPC will consider reconsidering this resolution. It would not be wise for the MPC to survive in a language that is educationally correct, but lacks the effectiveness of communication, “he said.
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