Since several uncertainties, especially on the fiscal and external fronts, persist it is important to be vigilant, RBI governor Urjit Patel said at the meeting of the monetary policy committee (MPC). He added that the recent upturn in crude oil prices has emerged as a cause of concern. “Hence, I vote for status quo in the policy rate, while maintaining the stance as neutral; this allows us the flexibility to respond appropriately to incoming data,” Patel said, according to the minutes of the MPC, which voted 5-1 to keep the policy rates unchanged at 6%. Patel said that inflation expectations of households 0for both three-month ahead and one-year ahead periods in the latest round of the central bank’s survey moved up. The percentage of households expecting inflation to rise at a faster rate than the current level was the highest since end-2013. Coupled with that were rising input cost pressures for both manufacturing and services and concerns of a fiscal slippage. “Should this risk materialise, it would have implications for the inflation outlook. These risks to the inflation trajectory could, however, be alleviated to some extent by the expected seasonal moderation in vegetable prices and the pass-through of recent reduction in GST rates on certain goods and services to retail prices,” he said.
Deputy governor Viral Acharya also said there was little scope for accommodation or for change of stance at the present juncture. He added that he would like to understand the impact of Goods and Services Tax (GST) on price levels as its rollout stabilises, assess in the coming months the robustness of growth revival in GVA manufacturing and track the impact of commodity prices on the Indian economy and markets. “Hence, I vote to keep the repo rate at 6% with neutral stance. Incoming data will be key to shape the policy going forward,” Acharya said. Meanwhile, RBI’s executive director Michael Patra cautioned that all the upside risks to inflation cited in previous resolutions were materialising. He said that price pressures are no more confined to vegetables alone, as in previous readings; they were getting diffused across petroleum products, services (excluding housing, which is being pulled up independently by statistical effects of the house rent allowance for central government employees), and into underlying inflation. Ravindra H Dholakia is the only dissenting member who voted for a 25 basis points (bps) cut in the policy rate. He disagreed with RBI’s assessment of both the CPI inflation and the economic growth prospects in the near term.