The Reserve Bank of India's Monetary Policy Committee (MPC) members were unanimous in stressing the need to bring inflation within the central bank’s tolerance band, the minutes of the rate-setting panel’s latest meeting released on June 22 show.
“The time is appropriate to go for a further increase in the policy rate to effectively deal with inflation and inflation expectations,” RBI governor Shakitkanta Das, who heads the six-member panel, said.
"As our policy in recent months has been unambiguously focussed on withdrawal of accommodation, both in terms of liquidity and rates, the change in the wording of stance should be seen as a continuation and fine-tuning of our recent approach," Das added. "The withdrawal of accommodation, as I see it, would be non-disruptive to the process of recovery and would strengthen our ongoing efforts to combat inflation and anchor inflation expectations."
The MPC raised the repo rate by 50 basis points on June 8 , almost a month after it had gone for 40 basis point hike in an off-cycle policy meeting to combat rising price pressure. One basis point is one-hundredth of a percentage point.
Retail inflation came in at 7.04 percent in May, easing from a near-eight-year high of 7.79 percent in the previous month. Inflation, however, has remained above the RBI's medium-term target of 4 percent for 32 consecutive months. More worryingly, it has now spent five months above the 6 percent upper bound of the 2-6 percent tolerance range.
In the latest meeting, RBI raised the inflation forecast by 220 basis points for this financial year to 6.7 percent, while retaining its growth forecast at 7.2 percent.
India’s economy is slowly recovering from the Covid-19 pandemic and subsequent lockdowns. The RBI, like most central banks across the world, is looking to pare the pandemic-era stimulus by raising the repo rate and gradually withdrawing surplus liquidity from the banking system.
(With inputs from agencies)