(FE)
The MPC had, on August 6, voted to keep the repo rate at 4% and retain its accommodative stance. RBI deputy governor Michael Patra said in his assessment, headline inflation in India may persist at current elevated levels at least through the second quarter of 2021-22 before easing in the third quarter when the kharif harvest arrives in markets.
Jayanth R Varma, MPC member, said there is a need to begin raising the reverse repo rate from 3.35% in order to keep the repo rate at 4% for longer even as he questioned the ability of monetary policy to fight the fallout of Covid-19 as the pandemic looks increasingly harder to stamp out completely. Varma had voted against retaining an accommodative stance and is of the view easy money today could lead to high interest rates tomorrow.”
Varma said has been arguing that if the reverse repo rate does not fall within the remit of the MPC, the announcement of that rate should be in the Governor’s statement and not the MPC’s statement. RBI ED Mridul Saggar said policy focus to revive growth on a durable basis needs to continue. Such a focus should entail consideration to avoid inflation risks that may emanate when credit demand improves, likely ahead of output gap closing. This task needs to be carried out without endangering sustainable recovery in growth.
“However, averting markets becoming opiated to slush liquidity designed as temporary crisis measures is critical to facilitate unwinding when the time comes. Gradual adjustments that are non-disruptive are possible within the accommodative stance,” Saggar added.
