MUMBAI: RBI deputy governor Michael Patra has called for taking the repo rate above the four quarters-ahead forecast of inflation. His call came even as RBI governor Shaktikanta Das flagged inflation as a “major concern”. The minutes of the meeting reveal that inflation has taken centre stage and the members were confident of the growth while their objective was to bring a ‘soft-landing’.
In the monetary policy committee (MPC) meeting, the minutes of which were released by the RBI on Wednesday, Das said, “While high inflation continues to be the major concern, revival of economic activity remains steady and is gaining traction. The time is appropriate to go for a further increase in the policy rate to effectively deal with inflation and inflation expectations.” Das also voted for change in the stance to provide greater clarity on the RBI’s policy intent by focusing on withdrawal of accommodation.
Hitting out at critics of the central bank, Patra said, “On one side are the nihilists — they lick their lips and obsess that the RBI, like a lamb to the slaughter, is about to fail in its monetary policy mandate. They fail to differentiate between a procedural issue and sensationalism.” He added, “On the other side are the facts, the immutables, which suggest that inflation may be peaking. In June, the excise duty cuts on petrol and diesel will have kicked in strongly and knocked off 20bps (100 basis points = 1 percentage point) from headline inflation. After that, second-order effects will take effect. Other measures will work like second-order effects to soften core inflation at the margin.”Pointing out that monetary policy works with lags, Patra said that following the RBI action, demand will inevitably get restrained and become compressed to the level of supply. Patra had a warning on growth. “It is important to condition public perceptions and expectations that growth will be closer to 6% than to 7% in FY24 as a result of monetary tightening.”
Rajiv Ranjan, executive director at the RBI and the third member representing the central bank in the panel, said fighting inflation becomes a joint responsibility when the monetary fiscal coordination is at its best. “Thus, it may be important for the government — both Centre and states — to successfully complete their budgeted capex plans and work through their counter-cyclical policy levers to ensure a soft-landing for the economy amidst monetary tightening to rein in inflation,” said Ranjan.