RBI Guv opted for cautious approach at MPC meet

RBI Governor Urjit Patel adopted a cautious approach in the latest monetary policy review, taking into account the twin factors of rising inflationary risk and nascent economic recovery, as per the minutes of the meeting released today.
The six-member Monetary Policy Committee (MPC), headed by Patel, had met on February 6-7 to decide on the key interest rates. It had decided to keep the repo rate unchanged for the third time in a row at 6 per cent.
Five members including Patel voted in favour of status quo on the repo rate, while RBI Executive Director Michael Debabrata was for raising it by 25 basis points, as per the minutes released by the central bank.

"Although inflation risks have increased in recent months, incoming data should provide greater clarity about the persistence of inflationary pressures.
"The economic recovery is also at a nascent stage and calls for a cautious approach at this juncture," Patel said as per the meeting minutes.
On price situation, he said the inflation in the baseline scenario is projected to remain above the target of 4 per cent throughout 2018-19.

He said there are several upside risks to inflation, especially from the staggered impact of HRA increases by various state governments, policy for arriving at the minimum support prices for Kharif crops; and the fiscal slippage as indicated in the Union Budget.

Patel also voiced concern over impact of rising global oil prices on inflation.
However, he also said the domestic economic growth impulses are strengthening.
RBI Deputy Governor and MPC member Viral Acharya said the inflation scenario would imply a raise in policy rates.
However, he voted for a status quo in policy rates due to two reasons -- more data on impact of shale gas production on oil prices and economic growth prospects.
"If growth remains robust and inflation prints continue to project headline inflation a year ahead well above the target, then a change in stance from "neutral" to "withdrawal of accommodation" might have to be considered," Acharya opined.

As per the minutes, Patra voted for a 25 basis points increase in the policy rate "in view of the prolonged period of status quo, a series of rate increases may be warranted to remove excessive accommodation".