The Monetary Policy Committee (MPC) of the Reserve Bank of India will on April 6 make its first announcement of FY24. Market expectations are for a 25 basis increase in the repo rate, the rate at which RBI lends to the commercial banks. One basis point is one-hundredth of a percentage
The MPC, in the current rate hike cycle starting in May 2022, has hiked the repo rate by 250 basis points, taking the policy rate to 6.5 percent.
A majority of MPC members, in the last 4-5 meetings, agreed on the rate raises to keep inflation under check. Jayanth Varma is the sole member who voted for a rate pause in the last couple of meetings.
What did other members have to say over the last few rate hike decisions? What was their stance?
At its August meeting, the MPC raised the repo by 50 basis points. RBI Governor Shaktikanta Das, in his statement, said global and domestic issues could warrant further monetary tightening.
“Since the last MPC meeting in June 2022, there has been a considerable slowdown in the global economy and global inflation has hardened further. On the domestic front, though inflation has moderated and plateaued since its recent peak of April 2022, it remains unacceptably and uncomfortably high,” Das said.
Das, in his vote favoring the hike, said a new storm was originating from aggressive monetary policy tightening by central banks around the world.
Against this backdrop, the Indian economy presents a picture of resilience and financial stability, Das said. Economic growth is steadily improving. “There are, however, mixed signals and I vote for a 50 bps rate hike,” Das said.
At its December meeting, the MPC hiked the rate by 35 basis points after three consecutive increase by 50 basis points.
Das, in his MPC statement, said for the first time that the worst of inflation was behind, but added that a premature pause in monetary policy action would be a costly policy error at this juncture.
RBI Deputy Governor Michael Debabrata Patra in August voted for a 50 basis point hike. “Frontloading of monetary policy actions can keep inflation expectations firmly anchored, re-align inflation with the target and reduce the medium-term growth sacrifice,” said Patra.
In October, Patra noted that global central banks were racing in lockstep to raise policy rates by much more than their own historical experience. “Current levels of inflation haven’t been seen in decades, so are the banks overshooting, or overdoing it? Patra asked. "They are balancing the prospects of a recession against the risks of inflation remaining elevated and persistent.”
In December, Patra said warnings of a global slowdown were increasing the prospects of a drag on net exports from India in 2023-24. Patra suggested that a modest reduction in the size of the policy rate increase would provide the opportunity to weigh that assessment carefully. As a result, Patra voted for a 35 basis point hike.
Voting in favor of a 25 basis point hike in February, Patra said the stance of monetary policy will need to remain disinflationary until inflation returns to its targeted 4 percent, with a tolerance band of 2-4 percent.
“The Indian economy has demonstrated strength from global adversities and there is positive momentum underlying the steady emergence from the drag of the pandemic and the war,” said Patra.
(With inputs from agencies)