Shaktikanta Das, Governor of RBI (Image: X @Shaktikanta Das)

According to the minutes of the latest MPC (Monetary Policy Committee) meeting released by the RBI on Friday, a majority of the six members urged caution in avoiding deflationary measures in view of sticky food inflation dampening the face of inflation. RBI Executive Director Rajeev Ranjan said that although core inflation has softened further, food inflation risks remain elevated.

The MPC also includes panel chairman Governor Das, Deputy Governor Michael Debabrata Patra, and external members Shashanka Bhide (National Council of Applied Economic Research), Ashima Goyal (Research Professor), Jayanth R Varma (IIM) and Rajiv Ranjan (Executive Director of RBI). Among them, Das, Patra, Bhide and Ranjan voted to keep the policy repo rate unchanged at 6.5% and focus on easing the accommodation but Goyal and Varma voted to cut the policy repo rate by 25 basis points and for a policy change of neutrality from withdrawal of current stay.

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Accordingly, CPI Inflation for FY2025 is 4.5% compared to 4.9% in Qt 1; Q2 is 3.8%: Q3 4.6% and Q4 4.5%. Goyal voted for a 25bps rate cut and said that core inflation is around 5%. The inflation projection of 4.5% for FY25 gives an average real repo rate of 2% suggesting that the real repo rate will remain above neutral for a long time if it is not unchanged. The decline of inflation pushed the real repo above unity. This will subsequently reduce the real growth rate with a lag, core inflation is below 4% from January 2023 to December, meaning volatile commodity prices, EI Nino and heat waves could not reverse the approach to the target.

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The Monetary Policy Committee is accountable for fixing the benchmark interest rate in India. Every year the meetings are held at least for times specifically once a quarter, and it releases its core decisions and voting results on a particular matter as reports or minutes after each rendezvous.

(With inputs from The New Indian Express)