The “unacceptably high” inflation trending around 7 per cent
mark led the Reserve Bank of India to hike rates by an aggressive
0.50 per cent on Friday, according to Governor Shaktikanta Das.
Stating that there are signs that headline inflation, which has
breached the 6 per cent upper threshold set for the RBI for six
consecutive months, has peaked, Das on Friday said policy moves
from here on will be “calibrated, measured and nimble” and will
depend on unfolding dynamics.
The governor refused to spell out any guidance on the way
forward, pointing out that we live in a dynamic world where things
are changing very fast.
He also noted that generally, guidance in a rate hiking cycle is
difficult as compared to that in a rate cut cycle.
“… inflation still remains at uncomfortably or unacceptably high
levels and therefore, monetary policy has to act,” he told
reporters after the central bank’s six-member rate setting panel
decided to hike the repo rate at which it lends to the system by
0.50 per cent.
It can be noted that ahead of the policy announcement, many
analysts had been of the view that the hike would be a calibrated
0.35 per cent while a few expected the RBI to frontload by being
aggressive with a 0.50 per cent increase.
“Monetary policy will be calibrated, measured and nimble
depending on the unfolding dynamics of inflation and economic
activity. The focus will remain on ensuring safe and soft landing
for the economy,” he added.
He said steps have to be taken to contain inflation and
inflation expectations in the economy.
The Monetary Policy Committee (MPC) also took the growth aspect
into consideration while taking its call, he added.
Seeking to defend the deep rate cuts undertaken during the
pandemic, Das said inflation does not have its roots in the
monetary policy actions of the past but is led by supply-side
factors and international events.
In what may come as a relief to many, he reiterated that
inflation may have peaked and will moderate going forward.
It can be noted that while the MPC retained the FY23 forecast at
6.7 per cent, it said the April-June 2023 quarter will see the
headline number at 5 per cent. There was also a mention of the
objective to achieve 4 per cent CPI target in Das’ statement
earlier in the day.
When asked about the role played by the depreciating rupee in
the policy formulation, Das admitted that there is an impact of
imported inflation but added that the MPC’s deliberations were
influenced by the overall inflation and growth aspects.
Without spelling out what constitutes “volatility” for the RBI,
Das said the central bank does not have a level in mind for the
rupee and intervenes only when it finds volatilities to ensure that
the currency moves smoothly.
The MPC also deliberated on the negative interest rates being
earned at present, Das said, terming it as a “matter of
concern”.
Answering a query on whether we have hit the neutral rate yet,
Deputy Governor Michael Patra, who heads the important monetary
policy function and also sits on the rate setting panel, said, “the
path to the neutral rate is a two milestone journey”.
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