Reserve Bank cannot risk another bout of inflation, says Governor Das

• At the current juncture of the economic cycle, the Reserve Bank of India (RBI) cannot risk ‘another bout of inflation’ and so there is a need to wait for more evidence of inflation aligning durably with the 4 per cent target.

Highlights:

• In the October Monetary Policy Committee (MPC) meeting, RBI Governor Shaktikanta Das emphasized the importance of avoiding "another bout of inflation" as the economy navigates through uncertain times. The MPC kept the repo rate steady at 6.5%, marking 20 consecutive months without a rate change.

Inflation and the Economic Cycle:

• Retail inflation surged to 5.49% in September, prompting concerns. Governor Das reiterated that while the near-term outlook remains challenging, the conditions towards the end of the year may favor inflation aligning with the 4% target.

Monetary Policy Stance Shift:

• The MPC decided to change its policy stance from 'withdrawal of accommodation' to 'neutral,' indicating a more flexible approach to managing inflation and economic growth.

Divergent Views Within the MPC:

• MPC member Nagesh Kumar advocated for a 25 basis point rate cut, arguing that a cut would boost domestic demand and revive private investment, which has been sluggish despite healthy corporate balance sheets.

Wait-and-Watch Approach:

• Deputy Governor Michael Patra and external member Saugata Bhattacharya supported a cautious approach, voting to keep the repo rate unchanged while favoring a neutral stance, with Patra stressing that inflationary pressures could ease with a less restrictive policy.

Global and Domestic Uncertainties:

• Several MPC members, including Rajiv Ranjan, pointed to uncertainties such as geopolitical risks, U.S. elections, and China's fiscal policies, calling for a data-dependent and careful approach to future monetary policy decisions.

Prelims Takeaways:

• Consumer price-based inflation (CPI)
• MPC Members