The Reserve Bank of India’s (RBI) monetary policy committee’s (MPC) decision to keep interest rates steady at 6% on October 4 may have been right, Michael Patra, executive director at the central bank, said in a speech last month. RBI made the speech public only on Monday. “Against this backdrop of its appraisal of the evolution of macroeconomic and financial conditions, the MPC decided to hold the policy rate unchanged and maintain a neutral policy stance. In the reactions that followed, there seemed a central tendency that the MPC may have called right,” Patra had said in a speech on October 27 at the Jaipur regional office of the RBI. Patra also said in the MPC’s assessment, inflation will likely rise from current levels in the rest of the year, with farm loan waivers and the implementations of pay and allowance revisions by states posing upside risks.
In the monetary policy statement, the MPC has said the consumer price inflation had risen by around two percentage points since its last meeting. “These price pressures have coincided with an escalation of global geopolitical uncertainty and heightened volatility in financial markets due to the US Fed’s plans of balance sheet unwinding and the risk of normalisation by the European Central Bank,” it said. “Such juxtaposition of risks to inflation needs to be carefully managed,” it had said, adding that although the domestic food price outlook remains largely stable, generalised momentum is building in prices of items excluding food, especially emanating from crude oil and that the possibility of fiscal slippages may add to this momentum in the future. It had further said the MPC remains committed to keeping headline inflation close to 4% on a durable basis. In October, India’s retail inflation accelerated to 3.58% on the back of rising food and fuel prices, from 3.28% in September and as low as 1.46% in June.