Intriguing Stance: India's Monetary Policy Committee Maintains Caution Amid Inflation Concerns

The Reserve Bank of India's Monetary Policy Committee (MPC) maintains its cautious stance on adjusting interest rates due to concerns about the potential resurgence of inflation. The minutes of the October meeting, released today, indicate that the committee, comprised of three Reserve Bank of India and three external members, unanimously decided to keep the repo rate unchanged at 6.50% for the tenth consecutive time and shift their policy stance to 'neutral'.

Despite signs of progress in combating inflation, the MPC, which saw the appointment of three new external members this month, stressed the need to remain vigilant. External member Saugata Bhattacharya emphasized the importance of bringing Consumer Price Index (CPI) inflation sustainably closer to the target.

Reserve Bank of India Deputy Governor Michael Patra noted that a less restrictive monetary policy could ease inflationary pressures, but warned against reducing constraints too swiftly as it might undermine disinflation efforts. This perspective follows the September retail inflation rate reaching a nine-month high of 5.49%, driven largely by rising food prices, surpassing the central bank's 4% target.

In the latest vote, five out of the six MPC members supported maintaining the policy rates. However, newly appointed external member Nagesh Kumar advocated for a 25-basis-point cut in the policy rate. Kumar argued that such a measure could stimulate demand and encourage private investment, considering anchored inflation expectations and existing demand gaps in both domestic and international markets.

Despite some members leaning towards a rate cut to boost investment and demand, Reserve Bank of India Governor Shaktikanta Das cautioned against hasty actions. Das proposed a flexible approach, awaiting more concrete evidence of inflation aligning with the target before making any rate adjustments. This conservative approach reflects the committee's prioritization of long-term economic stability over short-term stimulus.