Synopsis
The Reserve Bank of India (RBI) maintained its repo rate at 6.50% while acknowledging softening food inflation. However, the MPC minutes cautioned about upside risks from weather and global commodity prices. The RBI emphasized its commitment to controlling inflation amidst global economic stability but with persistent geopolitical uncertainties.
Despite expecting relief, the Reserve Bank of India on Friday through its MPC minutes warned that adverse weather events and rise in international agricultural commodity prices pose upside risks to food inflation.
“Going forward, food inflation is likely to soften in Q4 with seasonal easing of vegetables prices and kharif harvest arrivals; and good soil moisture conditions along with comfortable reservoir levels auguring well for rabi production. Adverse weather events and rise in international agricultural commodity prices, however, pose upside risks to food inflation,” said the MPC Minutes.
The RBI in its outlook further said that the global economy remains stable with growth holding up amidst waning inflation, albeit at a slow pace. Geopolitical risks and policy uncertainty, especially with respect to trade policies, have imparted heightened volatility to global financial markets.
Earlier, the central bank on December 6 announced its latest monetary policy decisions with repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent. This followed a three-day meeting that began on December 4. The rate setting panel also decided to continue with the neutral monetary policy stance and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.
The recent spike in inflation highlights the continuing risks of multiple and overlapping shocks to the inflation outlook and expectations. Heightened geo-political uncertainties and financial market volatility add further upside risks to inflation, added the RBI in its MPC minutes.
Further, RBI warned that high inflation reduces the purchasing power of both rural and urban consumers and may adversely impact private consumption. Saugata Bhattacharya, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and former governor Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50 per cent. Dr. Nagesh Kumar and Professor Ram Singh voted to reduce the policy repo rate by 25 basis points.
“The policy priority at this critical juncture has to be on restoring the inflation growth balance. The fundamental requirement now is to bring down inflation and align it with the target,” Das said as per the minutes of the December 4-6 MPC meeting released by the RBI on Friday.
It was the last meeting of the MPC under Das, who demitted office earlier this month after completing an extended six-year tenure.