MPC members assert need to maintain accommodative stance: Minutes

The Reserve Bank’s Monetary Policy Committee members, in their recent meeting, expressed the need to continue with the accommodative stance to ensure that economic recovery gains greater traction and becomes broad-based.

The minutes of the MPC meet which took place February 3-5, revealed that all six members also noted lower consumer inflation brightened the outlook even as upside risks persist.

Consequently, on February 5, the MPC retained the RBI’s key short-term lending rates along with the growth-oriented accommodative stance during the final monetary policy review of FY21.

The MPC of the central bank voted to maintain the repo rate, or short-term lending rate, for commercial banks, at 4 per cent.

Likewise, the reverse repo rate was kept unchanged at 3.35 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.

The Reserve Bank’s MPC minutes released on Monday quoted RBI Governor Shaktikanta Das as saying: “Growth, although uneven, is recovering and gathering momentum, and the outlook has improved significantly with the rollout of the vaccine programme in the country. The growth momentum, however, needs to strengthen further for a sustained revival of the economy and for a quick return of the level of output to the pre-Covid trajectory.”

“The sharp correction in food inflation has improved the near-term headline inflation outlook, although core inflation pressures persist. Given the sharp moderation in inflation along with a stable near-term outlook, monetary policy needs to continue with the accommodative stance to ensure that the recovery gains greater traction and becomes broad-based.”

RBI Deputy Governor Michael Debabrata Patra said: “The most heartening feature of the recent shifts is the large fall in inflation, taking it closer to the target after 6 months of persisting outside the tolerance band. If the sharp disinflation in vegetable prices extends into the spring, headline inflation can ease further, empowering the conduct of monetary policy.”

“Meanwhile, mending of supply chains and normalisation of activity is underway, especially recouping of lost incomes by both households and businesses, and that is keeping mark-ups and blue-collar wages elevated.”

Another member Prof. Jayanth R. Varma was quoted as saying in the MPC minutes: “I support maintaining the policy rate at its current level and I also support the accommodative stance as these decisions are consistent with the forward guidance provided by the MPC in its last two meetings (October and December 2020).”

“With both inflation and growth outcomes being well within the range of expectations of the MPC, and short-term interest rates being within the corridor defined by the repo and reverse repo rate, there is nothing to be done and there is nothing to be said as of now. The MPC must of course continue to be data driven and must continue to monitor future developments carefully.”

MPC member Mridul K. Saggar said: “With headline inflation having already corrected as supply shocks have substantially faded, keeping inflation around the target is the best contribution monetary policy can make to fortify and sustain growth.”

“In my view, the baseline is still consistent with supporting growth through accommodative policy stance in near term.”