RBI MPC Minutes: Governor Sanjay Malhotra ties future hikes to growth-inflation outlook — here is what he said
Reserve Bank of India (RBI) policymakers agreed that rising inflation required close monitoring but differed over how strongly the central bank should signal further interest rate hikes, according to the minutes of the Monetary Policy Committee (MPC) meeting released on Wednesday.
The MPC met from October 5 to 7, when all six members voted to increase the benchmark repo rate by 25 basis points (bps) to 5.5%. The increase marked the first rate hike in nearly four years, reflecting growing concerns about persistent price pressures.
RBI Governor Sanjay Malhotra said the duration and extent of the rate-hiking cycle would depend on actual economic growth and inflation developments, as well as their outlook.
“The extent and duration of the tightening cycle would depend on how growth and inflation evolve,” particularly underlying price pressures and signs that the supply shock is spreading more broadly, he said.
Malhotra highlighted increasing signs that inflation was spreading across the consumer price index (CPI) basket. According to the meeting minutes, 37% of commodities in the basket recorded inflation above 4% in August, compared with just 20% in March.
The increase in the proportion of commodities experiencing elevated inflation strengthened concerns that price pressures were becoming more widespread rather than remaining confined to a limited number of categories.
The governor's assessment indicated that the central bank would need to remain vigilant as it evaluates incoming economic data before deciding on the next steps in monetary policy.
Deputy Governor Poonam Gupta and RBI Executive Director Indranil Bhattacharyya made a stronger case for acting early to contain inflation.
Gupta argued that policymakers should not wait for conclusive evidence of a broadening inflationary trend before responding. Monetary policy operates with a lag, meaning that delaying action could make it more difficult to bring inflation under control.
“The pace, extent, and duration of such actions would depend on the incoming data on inflation, its diffusion, and evidence of second-round effects,” Gupta said.
She also said another rate increase might be necessary to keep inflation expectations anchored. Her position underscored concerns that prolonged price pressures could become entrenched, requiring more aggressive intervention later.
Two external MPC members, Nagesh Kumar and Ram Singh, opposed the shift towards a tightening stance, favouring a neutral policy setting amid heightened geopolitical and trade uncertainties.
Singh warned that signalling the possibility of significant rate increases could adversely affect economic activity. Higher borrowing costs and expectations of further monetary tightening could weaken household consumption and private investment.
He also cautioned that such signals might weigh on companies' capital expenditure plans, potentially affecting investment and growth.
The differing views highlighted the challenge facing the RBI as it attempts to contain inflation without unnecessarily restricting economic activity.
The policy debate comes against a deteriorating inflation backdrop. Consumer-price inflation accelerated to an almost two-year high in September, approaching the upper end of the RBI's 2%-6% tolerance band.
A weak monsoon has raised concerns about persistently elevated food prices, while the rupee's depreciation could add to inflationary pressures by increasing the cost of imported goods.
These developments could complicate the central bank's policy decisions in the coming months. While some policymakers favour a proactive response to prevent inflation expectations from rising, others remain concerned about the potential consequences of tighter monetary policy for consumption, investment and economic growth.
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