RBI's focus will remain on disinflation, food inflation to remain stable: RBI MPC minutes

The fiftieth meeting, held under section 45ZB of the RBI Act, 1934, concluded with a decision to keep the policy repo rate unchanged at 6.5 per cent and continue with the accommodative stance.

“Inflation is gradually moderating, but its pace is slow and uneven. Sustainable alignment of inflation with the 4.0 per cent target is still some way off. Persistent food inflation is making core inflation sticky. There is a need to keep inflation expectations anchored,” Das said.

He said, “Food inflation must be prevented from spreading to the core. At such a critical juncture, stable growth impulses allow monetary policy to focus clearly on bringing inflation back to the target. The best contribution that monetary policy can make to sustainable growth is to maintain price stability. Taking all these factors into account, I vote for keeping the policy repo rate unchanged at 6.5 per cent and continuing with the accommodative stance.”

Reserve Bank of India Deputy Governor Dr. Michael Debabrata Patra expressed concern over the widening gap between core inflation and food inflation, which is hampering efforts to bring core inflation in line with the target.

He said, “The Monetary Policy Committee (MPC) of the RBI has committed to keeping inflation in line with the target. This has not been achieved yet; any deviation from this commitment could undermine the prospects of the Indian economy. Therefore, I vote for keeping the policy rate and the stance of withdrawal of accommodation unchanged in this resolution.”

The gap between headline and food inflation is widening, making it difficult to align headline inflation with its target. With key food categories such as cereals, pulses, spices and vegetables experiencing double-digit inflation for several months now, empirical data suggests that food inflation is becoming more persistent, taking longer to return to trend after shocks.

MPC member Dr. Rajiv Ranjan said that risks to the global economic scenario have increased, but the domestic economy remains resilient. However, he pointed out that risks to inflation are currently higher than risks to growth.

“Flexible growth allows us to focus on inflation and maintain the status quo until some of these risks are abated and trade-offs are minimized,” he said.

Risks to the global economic outlook have increased since the last Monetary Policy Committee meeting, while the domestic economy remains resilient. Domestically, inflation risks outweigh growth risks at the margin

MPC Member Prof. Jayant R. Varma reiterated his concern about the excessive restriction of the current monetary policy and its impact on growth.

“In several meetings I have expressed concern about the unacceptable loss of growth caused by overly restrictive monetary policy,” he said.

He said, “RBI's projections show that inflation is moving up and down quarter by quarter, but the trend line is clearly downward, and the projected inflation for the first quarter of 2025-26 is 4.4 per cent. On a future basis, the current repo rate of 6.5 per cent translates into a real rate of 2.1 per cent. This is much higher than the amount needed to take inflation to the target of 4 per cent.”

MPC member Dr Ashima Goyal reiterated Verma's concerns and voted for a 25 basis point cut in the repo rate, advocating a neutral stance. She highlighted global uncertainties, including the possibility of a rate cut by the US Federal Reserve, and said market rates in India are already moving lower as liquidity improves with government spending.

He said, “With government spending as well as improved liquidity, we are seeing a decline in market rates. The call money rate is also close to the repo rate. This should be maintained. There is a need for adequate liquidity as well as prudent policies that create good incentives for the financial sector (P8), especially when sources of liquidity are limited for many parts of India's financial sector, leading to accumulation of liquidity. The balance requires avoiding excessive tightening.”

MPC member Dr. Shashank Bhide supported the decision to keep the policy repo rate unchanged at 6.5 per cent and stressed the need to focus on accommodativeness to keep inflation in line with the target.

He said, “Persistent food inflation may require a substantial reduction in core inflation to keep core inflation close to the target. High food inflation will therefore adversely impact growth as it affects consumption and restrictive monetary policy is needed to reduce core inflation, especially when persistent food price pressures have a significant impact on core components.”