Home Market RBI Guv, others voted for rate hike on inflation risks

RBI Guv, others voted for rate hike on inflation risks


RBI Governor Urjit Patel voted for interest rate hike citing inflation risks and related uncertainties while his deputy Viral Acharya felt there was no alternative to it by 25 basis points, as per the minutes of the MPC meeting released today.

After over four years, the Reserve Bank of India raised the short-term lending rate (repo) to 6.25 per cent on June 6 after the Monetary Policy Committee (MPC) headed by Patel unanimously voted for the hike on inflationary concerns.

"Inflation risks have increased since the April policy. I, therefore, vote for an increase in the policy repo rate by 25 basis points. In view of prevailing uncertainties, it is apposite to maintain the neutral stance so as to respond to the evolving situation in a flexible manner," as per the minutes, quoting Patel.

He said the baseline inflation path faces several uncertainties, like oil prices, continuing volatility in global financial markets; and the impact of the likely revision in the MSP formula.

However, a normal monsoon, by keeping food inflation benign, could act as a mitigating factor, the RBI chief said.

On the positive side, food inflation has continued to be benign, he noted.

Acharya, who had indicated his growing concern around underlying inflationary pressures in the April monetary policy review, said there has been a rise in input costs due to supply shocks such as the sharp oil price surge witnessed over the past nine months.

The projection for medium-term headline CPI inflation has become firmer on the upside and it has moved closer to 5 per cent and away from 4 per cent (the mandated target of the MPC), he said.

"…there is no alternative to raising the policy rate by 25 bps so as to signal concern about underlying inflation, manage inflation expectations, and guard proactively against a further increase in inflation," Acharya opined.

However, considerable uncertainties around oil and food prices as well as the playing out of trade wars and global financial market outcomes led me to keep the stance neutral, he added.

As per the minutes, Patel pointed that the recent increase in oil prices, by impacting disposable incomes, may have some adverse impact on private consumption.

On the whole, economic activity continues to be resilient, he added.

Michael Debabrata Patra, Executive Director of RBI), is the third represtative of the central bank in the MPC and favoured 25 bps hike in repo rate.

Ravindra H Dholakia, Pami Dua and Chetan Ghate, the independent members on the MPC, too voted for hike in the interest rate.

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