RBI releases minutes of MPC meet for April 2023 policy. Key takeaways here

Hinting for another repo rate hikes in the coming time, RBI Governor Shaktikanta Das, said that the fight against inflation is far from over. In the minutes of the meeting of the April 2023 policy which was released on Thursday, the RBI governor also talked about global uncertainty and risk of runway faced by central banks across the world.

Notably, amid expectations of another rate hike of around 25 basis points, the Reserve Bank of India chose to keep the liquidity adjustment facility (LAF) unchanged art 6.50 per cent. Other than this, RBI also kept the standing deposit facility (SDF) rate unchanged at 6.25 per cent, whereas, the marginal standing facility (MSF) rate and the Bank Rate also remain unchanged at 6.75 per cent.

Following are the key highlights of RBI minutes

-The six-member board unanimously voted in the favour of the resolution to keep the policy repo rate at 6.50 per cent. The board consisted of  Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R. Varma, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra, and Shaktikanta Das.

-Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. Prof. Jayanth R. Varma expressed reservations on this part of the resolution.

- Weal global economic environment led by slump in demand and uncertain financial and energy markets: Dr. Shashanka Bhide brought the attention towards the weakness in global economic enviornemnt, which was majorly led by reduction in demand and uncertainty in financial and energy markets. He also added that the growth performance of the country indicates the uneven growth across production sectors and subdued growth in the more recent quarters of FY 2022-23.

"The key concern on the growth front in the immediate future is the drag caused by the weak external demand conditions. The impact of any adverse weather conditions on Indian agriculture provides additional downside risk to the growth trajectory," said Dr Shashanka Bhide on Thursday.

-There is no logic for overshooting policy rates: Dr. Ashima Goyal expressed that the economic situation at global situation is compartitively improving with time. However, India's better policy and buffers can make it possible for India to demonstrate its independence from advanced economies central banks, like US Federal Reserve.

Although growth is resilient, there are signs of slowdown in some high frequency data. Softening non-oil non-gold imports point to weakness in domestic demand; slowing exports are affecting manufacturing; rising loan rates are reducing demand for low income housing," she added.

She also said discouraged the unnecessary rate hike in a country like India where the largest impact of interest rate hike is on growth. 

-OPEC oil cut and Monsoon can raise inflation: Another member, Jayanth R. Varma said that inflation can increase under the impact of OPEC oil cut and poor monsoon rainfall in the coming months.

“The MPC needs to keep a careful watch on this evolving situation. If crude were to creep towards the triple digit mark, there might be a need for a monetary response,” he added.

He pointed out towards the lack of accurate data during the monetary policy committee meeting. He said that the accurate data related to monsoon rain will be available only in June.

-Positive signals visible on the domestic front: At the domestic front, the Indian economy is showing some visible positive signals in terms of easing inflation, robust domestic growth momentum, and India's insulation from global banking crisis, noted Dr. Rajiv Ranjan. 

“Though inflation at present remains above the comfort zone, there are reasons for optimism going forward. The heat wave of February and the unseasonal rains of March are expected to have only some localised impacts, raising the prospects of an overall good rabi harvest. High frequency food price indicators for the month of March are already indicating a decline in wheat prices. Furthermore, international food prices have registered a decline of around 19 per cent in February 2023 from its peak in March 2022, which could help lower costs for critical import dependent food items through appropriate trade policies,” he added.

-Inflation above 6 per cent is inimically harmful for growth: In the wake of the broadening momentum of economic activity in India, there are indications of strong demand pressure, especially for contact-intensive services, noted Dr. Michael Debabrata Patra.

“By current reckoning, the future path of inflation is vulnerable to several supply shocks. The MPC must accordingly remain on high alert and ready to act pre-emptively if risks intensify to both sides of its commitment: price stability and growth,” he said.