India cannot risk another bout of inflation, says RBI Governor Shaktikanta Das

Reserve Bank Governor Shaktikanta Das, while voting to maintain the status quo on benchmark rates at the last MPC meeting, stated that India cannot afford another surge in inflation. He emphasized that the best approach is to stay flexible and wait until inflation consistently aligns with the central bank's target.

"Monetary policy can support sustainable growth only by maintaining price stability," Das said, as per the minutes of the Monetary Policy Committee (MPC) meeting held earlier in the month.

The MPC decided to maintain the benchmark interest rate at 6.5 percent, marking the tenth consecutive meeting where the policy rate remained unchanged, with a majority vote of 5-1.

However, the committee unanimously shifted its stance from "withdrawal of accommodation" to "neutral."

This was the first meeting of the reconstituted MPC, with newly appointed external members Ram Singh, Saugata Bhattacharya, and Nagesh Kumar.

According to the meeting minutes, Das emphasized that monetary policy can only support sustainable growth by ensuring price stability.

"Taking all these factors into consideration, I vote for changing the stance from withdrawal of accommodation to 'neutral' while keeping the policy repo rate unchanged at 6.50 per cent," he said.

Indian economy reflects stability and strength

He stated that the Indian economy as a whole reflects stability and strength, with a well-balanced relationship between inflation and growth. Although inflation has risen in the short term, the outlook for headline inflation in the latter part of this year and early next year suggests further progress towards the 4 percent target, he added.

"Thus, the conditions are appropriate for a change in monetary policy stance to neutral from withdrawal of accommodation. This would provide greater flexibility and optionality to monetary policy to act in accordance with the evolving outlook. It also provides space to watch out for the uncertainties on the horizon - ranging from heightened geo-political tensions and volatile commodity prices to risks of adverse weather in food inflation," he said.

RBI Deputy Governor Michael Debabrata Patra echoed a similar sentiment, stating that a gradual wait-and-watch approach to easing policy restrictions, particularly regarding the policy rate, remains suitable as long as inflation doesn't consistently approach its target. Consequently, he voted to maintain the policy rate but suggested shifting the stance to neutral during the meeting.

Another member, Rajiv Ranjan, Executive Director at RBI, mentioned that by December, there would be more clarity on some key uncertainties, including the U.S. elections, geopolitical risks, and the impact of Chinese fiscal stimulus on global commodity prices.

"At this juncture, India's resilient growth story helps us to continue our determined focus on inflation and keep the policy rate unchanged at 6.5 per cent. Hence, I vote for a status quo on rates and change of stance to neutral," Ranjan had said.

External member Nagesh Kumar, who voted for a 25 basis point rate cut, stated that it was an ideal time for the RBI to begin normalizing monetary policy. Kumar argued that with inflationary expectations successfully anchored and weakening industrial demand in both domestic and export markets, a rate cut could stimulate demand and boost private investment.

The other two external members, Saugata Bhattacharya and Ram Singh, part of the reconstituted MPC, also supported maintaining the current rate. However, they advocated for a shift in the policy stance to neutral.

(With inputs from PTI)