RBI's MPC minutes: Majority of members voted to keep repo unchanged

Majority of the RBI's six-member Monetary Policy Committee, including Governor Urjit R Patel, favoured to retain the key repo rate unchanged earlier this month, as part of "calibrated tightening" to keep retail inflation at 4 per cent, as per minutes of the meeting released Friday.

Pami Dua, Ravindra H Dholakia, Michael Debabrata Patra, Viral V Acharya and Urjit R Patel voted in favour of keeping the policy repo rate unchanged, RBI said in its minutes of the MPC meeting held between October 3-5.

MPC member Chetan Ghate voted for an increase in the policy rate by 25 basis points (bps), RBI said.

During its fourth bi-monthly monetary policy review that kept the key repo rate unchanged at 6.50 per cent, the RBI's MPC noted that global headwinds in the form of escalating trade tensions, volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation outlook.

"It is, therefore, imperative to further strengthen domestic macroeconomic fundamentals," the RBI had said in its monetary policy.

The MPC meeting was attended by all the members - Ghate, Professor, Indian Statistical Institute; Pami Dua, Director, Delhi School of Economics; Ravindra H Dholakia, former professor, Indian Institute of Management, Ahmedabad; Michael Debabrata Patra, Executive Director RBI; Viral V Acharya, Deputy Governor in charge of monetary policy - and was chaired by Governor Urjit R Patel.

The central bank said the decision of the MPC was consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of (plus, minus) 2 per cent, while supporting growth.

Regarding the stance, Dua, Ghate, Patra, Acharya and Patel voted in favour of changing the stance to calibrated tightening.

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Dholakia voted to keep the neutral stance unchanged.

The next meeting of the MPC is scheduled on December 3-5 and the minutes of the meeting will be published 14 days later.

The policy repo rate -- at which RBI lends to banks -- was raised by 25 basis points (0.25 per cent) each in the last two consecutive meetings of the MPC in June and August.

"Moderation in inflation in the last two months has lowered the projected inflation trajectory. I vote for keeping the policy repo rate unchanged. Recognising that inflation risks have been persistent, and to reaffirm the commitment to securing the mandated 4 per cent inflation target on a durable basis, it is apposite to change the stance of monetary policy from neutral to calibrated tightening," the minutes said quoting Patel.

"Calibrated tightening means that in the current rate cycle, a cut in the policy repo rate is off the table, and we are not obliged to increase the rate at every policy meeting," Patel added.

Ghate, who voted for an increase in the policy repo by 25 basis points and for a change in stance from neutral to calibrated tightening, said anchoring inflationary expectations, which are shaped by the target, is extremely important in an inflation targeting regime.

"If there is substantial deviation of inflationary expectations in relation to the target, by failing to react with the policy interest rate, we will lose credibility and reduce our capacity to influence expectations," Ghate said in the meeting.

Dua said while inflation has softened, upside risks to inflation remain alongside some downside risks to output growth, while Dholakia noted that the impact of depreciating rupee on inflation is not likely to be very substantial and the headline inflation forecast 12 months ahead by RBI is on a higher side.

Patra, who warned that the softer inflation prints expected in the second quarter could likely lull inflation expectations, said monetary policy needs to stay focused on its mandate the target of 4 per cent inflation, while keeping in mind the objective of growth within the RBI's overall policy framework that assigns appropriate instruments to goals in order to secure efficient policy outcomes.

Since the August policy, food inflation has surprised dramatically on the downside. Seasonal pickup in prices of vegetables and fruits in summer months was simply missing due to a combination of increased mandi arrivals, export policies and other supply management measures. This, coupled with a normal monsoon, has shifted RBI's food inflation projections significantly downward, Acharya said in the MPC meeting.

It seems important to signal commitment to keeping to the mandate and move forward carefully at an appropriate time, allowing the economy to adjust to the past two back-to-back rate hikes while being vigilant of any emerging inflationary pressures, he added.