India: MPC minutes say addressing inflation risks crucial

• Almost all members of India’s monetary policy committee argued in favour of action to curb inflationary pressures at their 6-8 Apr 22 meeting despite continuing risks to economic growth, minutes released showed.
• Although it chose to keep its key lending rate at a record low, the Reserve Bank of India said after the meeting that it would shift away from its ultra-loose monetary policy stance to focus on inflation, which has surged due to the Ukraine war.
• In a surprise move, the central bank restored its liquidity adjustment facility corridor to pre-COVID-19 levels, which was seen as a first step in moving away from pandemic emergency measures.
• “Circumstances warrant prioritising inflation and anchoring of inflation expectations in the sequence of objectives to safeguard macroeconomic and financial stability, while being mindful of the ongoing growth recovery,” Governor Shaktikanta Das wrote in the minutes.
• Michael Patra, deputy governor at RBI believes that the worst fears on inflation were materializing.
• “The view that increasingly occupies center-stage is that irrespective of whether supply bottlenecks are the driver or pent-up demand, it will become more difficult to tame inflation the longer the fight is delayed,” Patra said. T
• Several market participants and economists now expect the MPC to change its stance to ‘neutral’ in Jun 22 and start raising the repo rate in Aug 22 – and potentially even in Jun 22 – if inflation continues to surprise on the upside.
• “The policy will still stay accommodative as rates, even after lifting nominal rates, will stay below real neutral rate for foreseeable future,” RBI executive director and MPC member Mridul Saggar said at the meeting, according to the minutes.
• Future policy actions will either be a pause or raising of rates, said MPC member Ashima Goyal.
• “Rebalancing of liquidity started in 2021, and has now reached a level, with new facilities to absorb liquidity, that is compatible with raising policy rates. Short rates are set to rise to make the repo rate the operational policy rate again,” she added.
• As long as rates remain below the neutral rate, it is still not a tightening regime, Goyal said.

External Link : https://economictimes.indiatimes.com/news/economy/policy/mpc-members-say-addressing-inflation-risks-crucial-minutes/articleshow/91005689.cms

External Link : https://www.reuters.com/world/india/india-mpc-members-say-addressing-inflation-risks-crucial-minutes-2022-04-22/