“In the second half of 2022-23, monetary policy has, in my view, become complacent about growth, and I fervently hope that we do not pay the price for this in terms of unacceptably low growth in 2023-24,” he said, as per the minutes of the MPC‘s February meeting.
RBI expects India’s gross domestic product (GDP) to grow at 6.4 per cent during 2023-24 with Q1 growth rate at 7.8 per cent, Q2-6.2 per cent, Q3 at 6 per cent and Q4 at 5.8 per cent.
Retail inflation for FY23 is forecast at 6.5 per cent and for Q4 at 5.7 per cent. Retail inflation for FY24 has been forecast at 5.3 per cent with Q1 at 5 per cent, Q2 at 5.4 per cent, Q3 at 5.4 per cent and Q4 at 5.6 per cent.
“I believe that the 25 basis point rate hike approved by the majority of the MPC is not warranted in the current context of diminished inflationary expectations and heightened growth concerns. I therefore vote against this resolution,” he added.
Varma opined that a repo rate of 6.50% very likely overshoots the policy rate needed to achieve price stability and that further tightening was not desirable.
According to another MPC member Ashima Goel opinion, as stated in the RBI minutes, it may be time for some more excise tax cuts as multiple supply shocks have imparted persistence to inflation.”In view of these arguments, I vote for a pause. It is better to give time for possible softening of both inflation and growth and effects of past monetary tightening to play out. I am also in favour of a shift to a neutral stance which is consistent with response in any direction as required depending on the impact of global and domestic factors on expected inflation,” she said.
As for the stance, the MPC with a 4:2 majority decided to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.
On the guidance front, Governor Shaktikanta Das said that it would be ‘inadvisable’ to provide specific guidance when the RBI is in a tightening cycle and when we are experiencing such extreme uncertainty.
“The only forward guidance that we can provide is that we will remain vigilant, monitor every incoming information and data, and shall act appropriately to maintain price stability in the interest of strengthening medium-term growth,” he said.
The RBI rate-setting panel had increased the repo rate by 25 bps. The retail inflation outlook for the ongoing fiscal year is at 6.5% while GDP growth for FY24 is seen at 6.4%.
The key benchmark rate has now been hiked six consecutive times. The repo rate is the rate at which the RBI lends to the banks. Announcing the hike, RBI Governor Shaktikanta Das said the MPC decided to hike the policy rate by 25 bps to 6.5 per cent.
Since May last year, the RBI has increased the short-term lending rate by 225 basis points to contain inflation, mostly driven by external factors, especially global supply chain disruption following the Russia-Ukraine war outbreak.
