The Reserve Bank of India (RBI) highlighted upside risks to inflation in the 7th meeting of the monetary policy committee held on October 3 and 4 and said economic growth is likely to improve in the second half of the fiscal year. The central bank had kept its key repo rate steady at 6% at its monetary policy review on October 4. Consequently, the reverse repo rate remained at 5.75%, while the marginal standing facility rate and the bank rate was unchanged at 6.25%. “For keeping headline inflation close to 4% on a durable basis, it is important to recognise near and medium-term risks to the inflation outlook. “We have to be vigilant on account of uncertainties on the external and fiscal fronts; this calls for a cautious approach. I, therefore, vote for keeping the policy repo rate on hold, while maintaining the stance as neutral,” RBI governor Urjit Patel had said, the minutes of the meeting showed. Apart from the governor, deputy governor Viral Acharya and executive director Michael Debabrata Patra were also in favour of keeping the repo rate unchanged. Ravindra H Dholakia, professor, Indian Institute of Management, Ahmedabad had recommended at least a 25 basis points cut in the repo rate. The other two members of the committee, Chetan Ghate, professor, Indian Statistical Institute and Pami Dua, director, Delhi School of Economics also voted to keep the repo rate unchanged. The governor had argued that the headline consumer-price inflation has risen sharply in the last two months and there has been a broad-based increase in inflation excluding food and fuel, the minutes of the meeting showed.
He had said rising international crude prices and global geo-political uncertainty and volatility in financial markets have imparted uncertainty to the near-term overall inflation outlook. “A combination of farm loan debt waivers by state governments and the implementation of the pay commission award could entail some fiscal slippages and pose a risk to inflation,” Patel had added. Recent structural reforms may have had some impact on growth in the short run, Patel had said. However, they will boost medium-to-long-term growth prospects, he had added. “To improve immediate growth prospects, teething troubles relating to GST need to be addressed expeditiously. Concerted efforts also need to be made to encourage investment activity by removing various constraints. Resolution of stressed balance sheets of banks remains important for supporting a revival in the investment cycle. Finally, government should adjust administered interest rates on savings instruments every quarter as per the formula to help with monetary transmission,” Patel had said. Executive director Patra had said that it is time to be in readiness to raise the policy rate to quell the underlying drivers of inflation if they strengthen further, the minutes showed.