Given the “uncertain outlook”, the Reserve Bank of India (RBI) governor Shaktikanta Das during the Monetary Policy Committee (MPC) meeting between December 5 and 7, was of the view that rate hikes should continue in India.
“I am…of the view that a premature pause in monetary policy action would be a costly policy error at this juncture. Given the uncertain outlook, it may engender a situation where we may find ourselves striving to do a catch-up through stronger policy actions in the subsequent meetings to ward off accentuated inflationary pressures,” said Das, as per the minutes of the Monetary Policy Committee (MPC) meeting.
He added that it might result in the market and its participants overshooting the actual play out of real conditions.
Das was among the five MPC members that voted for a 35 basis points hike in the repo rate. Jayant Verma had voted against a hike, the minutes released on Wednesday showed.
“I believe that the 35 basis point rate hike approved by the majority of the MPC is not warranted in this context of reduced inflationary pressures and heightened growth concerns,” Verma said.
Shashanka Bhide, Ashima Goyal, Rajiv Ranjan and Michael Patra had also voted for a 35 bps hike.
The minutes further said that the central bank believed that the global growth outlook is “skewed to the downside”.
“Global growth is set to lose momentum as monetary policy actions tighten financial conditions and as consumer confidence weakens with the rising cost of livelihood. Inflation remains elevated and persistent across countries as they grapple with food and energy price shocks and shortages,” the RBI’s assessment of the global economy read.
RBI also said that inflation is expected to remain “above or close to the upper threshold” of 6 per cent in the third and fourth quarters of the current year.
“It is likely to moderate in H1FY24 but will remain well above the target,” RBI said.
In its monthly bulletin, released on Tuesday, RBI said that inflation would fall between 2 and 6 per cent in the next financial year.