RBI Feb 2023 Meeting Minutes: Central bank must remain unwavering to battle inflation, be mindful of growth

RBI February 2023 Meeting Minutes: RBI Governor Shaktikanta Das highlighted considerable uncertainty on the trajectory of inflation in the country due to geopolitical tensions, global market volatility, rising non-oil commodity rates, swings in crude oil prices and weather-related events, according to minutes of the the Monteray Policy Committee's first review of 2023, released on Wednesday. The Shaktikanta Das-led Monetary Policy Committee — the central bank's benchmark interest rate-setting panel — on February 8 decided to hike the benchmark interest rate by the sixth time in a row in the current cycle of tightening.

The minutes, containing remarks of the MPC members from its February 6-8 review, come at a time when major central banks around the globe have the Herculean task of controlling red-hot inflation without damaging economic growth amid fears of at least a mild recession.   

The RBI "must remain unwavering in our commitment to bring down inflation to ensure a decisive and durable moderation in inflation" towards the target over the medium term "while being mindful of growth", the Governor said.

He also said it is "necessary to persevere with the stance of withdrawal of accommodation to ensure a decisive process of disinflation", as he voted for maintaining the existing stance of policy, according to the minutes of the RBI policy review. The rate increase of 25 bps, announced on February 8, provides space to calibrate future policy action as well as stance based on "evolving macroeconomic conditions", according to Das.

The RBI's Monetary Policy Committee decided to raise the repo rate by 25 bps in its first review of the year. Repo rate is the benchmark interest rate at which the RBI lends money to commercial banks. 

RBI Deputy Governor Michael Debabrata Patra said that continuing global uncertainity has complicated the fight against inflation, according to the minutes. "The fight against inflation is complicated by the global outlook. There is some consensus growing around a milder slowdown than earlier feared, although geographical disparities complicate the prognosis. Be that as it may, the outlook for global inflation is turning more uncertain than before," Patra said.

"It will be premature to pause when there are no definitive signs of slowdown in inflation, particularly core inflation... Nevertheless, as the policy rate adjusted for inflation has now turned positive, albeit barely so, there is a case for paring down the pace of rate hike to the usual 25 bps."

— Rajiv Ranjan, Executive Director and MPC Member, RBI 

RBI MPC meeting minutes reveal overall hawkish tone: Economists

Many economists believe the minutes revealed an overall hawkish tone of the RBI in its February 2023 review.

"The February meeting reflected further widening divergence among MPC members on the future rates trajectory. Both the doves, Ashima Goyal and Jayanth Varma, maintained caution against getting over-restrictive on rates amid uncertain growth environment and argued that monetary policy lags should be kept in mind," said Madhavi Arora, Lead Economist, Emkay Global Financial Services.  

The MPC voted 4:2 to increase the rate as well as continue with its current policy stance of "withdrawal of accommodation" in the February meeting. 

The minutes of the latest RBI policy review come as many economists believe the escape of consumer inflation from the RBI's comfort zone after a gap of two months dashes nascent hopes of an early end ot the current cycle of rate hikes. 

The MPC has set the goal of keeping inflation within two per cent of four per cent on either side over the medium term. The RBI tracks consumer inflation closely for furmulating its monetary policy. 

Here's a quick recap of the February 8 RBI announcements 

• The RBI announced a hike of 25 basis points in the repo rate to 6.5 per cent, in line with economsits' expectations. 
• It lowered the consumer inflation projection for the year ending March 2023 by 20 basis points to 6.5 per cent, assuming crude oil to average at $95 a barrel. 
• The central bank forecast a GDP growth rate of 7.8 per cent for the quarter ending June 2023, 70 basis points higher than its earlier projection. 

Emkay is of the view that consumer inflation in the quarter ending March 2023 will overshoot the RBI's revised forecast by around 50 bps. The brokerage, however, retained its forecast for the next financial year at 5.2 per cent.

Read the full text of Shaktikanta Das's February 8 post-review speech 

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