Jayanth R Varma, a member of the monetary policy committee (MPC), which sets policy rates, said the panel’s 25 basis point (bps) rate hike is unwarranted in light of lower inflationary expectations increased growth concerns.
Varma went on to say that a repo rate of 6.50 per cent is very likely higher than the policy rate required to achieve price stability and that further tightening is not desirable.
“I believe that the 25 basis point rate hike approved by the majority of the MPC is not warranted in the current context of diminished inflationary expectations and heightened growth concerns. I, therefore, vote against this resolution,” Verma said.
To combat persistently high inflation, the central bank raised the repo rate by 25 basis points to 6.50 per cent in its February monetary policy. This was the central bank’s sixth consecutive rate hike in the last ten months.
Four of the six members voted in favour of a 25 basis point rate hike and in maintaining the policy stance of remaining focused on withdrawing accommodation to ensure that inflation remains within the target e supporting growth.
Varma stated that monetary policy was complacent about inflation in the second half of 2021-22 and we are paying the price in the form of unacceptably high inflation in 2022-23.
“In the second half of 2021-22, monetary policy was complacent about inflation and we are paying the price for that in terms of unacceptably high inflation in 2022-23. In the second half of 2022-23, monetary policy has, in my view, become complacent about growth, and I fervently hope that we do not pay the price for this in terms of unacceptably low growth in 2023-24,” Varma added.
To combat persistently high inflation, the MPC has raised the key policy rate by 250 basis points since May of last year. Retail inflation, which remained above 6 per cent for the majority of last year, has begun to moderate in recent months.
After falling for two months in a row, India’s headline retail inflation rate increased in January to 6.52 per cent. The RBI cut its inflation forecast for the current fiscal year by 20 basis points to 6.5 per cent in its February monetary policy, with inflation expected to average 5.7 per cent in January-March.
Meanwhile, core inflation has remained sticky in recent months, and the RBI has consistently stated that it will remain sticky and elevated.