Food inflation still a concern for RBI, price stability needed for high growth: Minutes of MPC meeting

\The Reserve Bank of India on Friday released the  Minutes of the latest Monetary Policy Committee meeting held last month. Most members of the Monetary Policy Committee meeting have expressed confidence in the current policy stance but was concerned about a range of factors like food inflation, external contingencies disrupting the disinflationary process. The panel believed that durable price stability would set strong foundations for a period of high growth. 

At its last bi-monthly MPC meeting on April 5, the RBI chose to maintain the repo rate at 6.5%. The decision was made due to worries about inflation. Five members, Dr. Michael Debabrata, Shashanka Bhide, Ashima Goyal, and Rajiv Ranjan, supported keeping the policy rate unchanged, while Jayanth R Varma proposed a 25 basis points reduction.

MPC member  Michael Debabrata Patra noted: "Recent inflation prints and high frequency data on salient food prices indicate that food inflation risks remain elevated. A relatively shallow and short-lived winter trough is giving way to a build-up of price momentum as summer sets in, with forecasts of rising temperatures up to May 2024." 

He said that firming global food prices and other factors mean India's headline inflation figure might remain in the 'upper reaches' of the tolerance band of 2-6 per cent until Q2FY25, he noted.

The MPC further noted that unpredictable supply side shocks from adverse climate events and their impact on agricultural production as also geo-political tensions and spillovers to trade and commodity markets add uncertainties to the outlook. The panel said that durable price stability would set strong foundations for a period of high growth. 

RBI Governor Shaktikanta Das said the success in controlling inflation has to be preserved and taken forward to achieve a 4 per cent inflation target on a durable basis. 

According to the minutes, Das said the economic growth prospects of the Indian economy in 2024-25 look bright.

He further said the baseline projections show inflation moderating to 4.5 per cent in 2024-25 from 5.4 per cent in 2023-24 and 6.7 per cent in 2022-23.

"This success in the disinflation process should not distract us from the vulnerability of the inflation trajectory to the frequent incidences of supply-side shocks, especially to food inflation due to adverse weather events and other factors," the governor said.

Jayanth R Varma, however, had a different view as he voted a reduction in the repo rate by 25 basis points as "high-interest rates entail a growth sacrifice".

Noting that that economic growth in 2024-25 is projected to slow by over half a percent relative to 2023-24, Varma said it was a reminder that the high-interest rates entail a growth sacrifice.

He noted: "Monetary policy should try to reduce this sacrifice while ensuring that inflation (a) remains within the band and (b) glides towards the target."

"Despite an uptick in crude oil prices, the outlook for inflation continues to be benign, and I remain convinced that a real interest rate of 1-1.5 per cent would be sufficient to glide inflation to the target of 4 per cent," Varma added.

The RBI is focused on bringing down the inflation to 4 per cent target on a durable basis. 

Shashanka Bhide, Ashima Goyal, and Jayanth R Varma serve as external members, with RBI Governor Shaktikanta Das, Deputy Governor Michael Debabrata Patra, and Executive Director Rajiv Ranjan representing the central bank. The next meeting of the MPC is scheduled for June 5-7. 

(With agency inputs)