India cannot risk another bout of inflation, says RBI Governor Shaktikanta Das

Reserve Bank Governor Shaktikanta Das, while voting to keep policy rates status quo at the last MPC meeting, said India cannot afford another rise in inflation . He stressed that the best approach is to remain flexible and wait until inflation aligns consistently with the central bank’s target.

“Monetary policy can only support sustainable growth by maintaining price stability,” Das said, according to the minutes of the Monetary Policy Committee (MPC) meeting held earlier this month.

The MPC decided to keep the benchmark interest rate at 6.5 percent, marking the 10th consecutive meeting where the policy rate was left unchanged, with a majority vote of 5-1.

However, the committee unanimously changed its position from “withdrawal of accommodation” to “neutral”.

This was the first meeting of the reconstituted MPC, with newly appointed external members Ram Singh, Saugata Bhattacharya and Nagesh Kumar.

According to the minutes of the meeting, Das stressed that monetary policy can only support sustainable growth by ensuring price stability.

“Taking all these factors into account, I vote to change the accommodation withdrawal stance to ‘neutral’, keeping the policy repo rate unchanged at 6.50 percent,” he said.

The Indian economy reflects stability and strength

He stated that the Indian economy as a whole reflects stability and strength, with a well-balanced relationship between inflation and growth. While inflation has picked up in the short term, the outlook for headline inflation in the latter part of this year and early next year suggests further progress toward the 4 percent target, he added.

“Thus, conditions are right for a shift in monetary policy stance to neutral from the withdrawal of accommodation. This would provide greater flexibility and optionality for monetary policy to act in line with developments of the outlook. It also offers room to watch for uncertainties on the horizon, ranging from heightened geopolitical tensions and volatile commodity prices to adverse weather risks in food inflation,” he said.

RBI Deputy Governor Michael Debabrata Patra echoed a similar sentiment, saying that a gradual wait-and-watch approach to easing policy constraints, particularly on the policy rate, remains appropriate whenever that inflation does not constantly approach its target. Consequently, he voted to maintain the political rate, but suggested changing the position to neutral during the meeting.

Another member, Rajiv Ranjan, RBI chief executive, mentioned that there would be more clarity in December on some key uncertainties, including the US election, geopolitical risks and the impact of Chinese fiscal stimulus on global prices of the raw materials.

“At this time, India’s resilient growth story helps us continue our determined focus on inflation and keep the policy rate unchanged at 6.5 percent. I therefore vote for a status quo on rates and shift to neutral stance,” Ranjan had said. .

External member Nagesh Kumar, who voted in favor of a 25 basis point rate cut, said it was an ideal time for the RBI to start normalizing monetary policy. Kumar argued that with inflationary expectations successfully anchored and weakening industrial demand in both the domestic and export markets, a rate cut could stimulate demand and boost private investment.

The other two outside members, Saugata Bhattacharya and Ram Singh, part of the reconstituted MPC, also supported maintaining the current rate. However, they advocated a change in the political position towards neutrality.