Noting that even though there is headroom for further monetary policy action, RBI Governor Shaktikanta Das said "it is important to keep our arsenal dry and use it judiciously".
"I also feel that we should wait for some more time for the cumulative 250 basis points reduction in policy rate since February 2019 to seep into the financial system and further reduce interest rates and spreads," Das said as per the minuted of the Monetary Policy Committee (MPC) meet released on August 20. He also emphasised the need to remain watchful and see to it that the momentum in inflation does not get entrenched, given the uncertain inflation outlook.
As per the minutes, Das also said it would be prudent at this stage to wait for a firmer assessment of the outlook for growth and inflation.
The Reserve Bank of India (RBI)'s rate-setting panel, at its last three-day meeting earlier this month, had kept the repo rate unchanged at 4 percent, amid rising inflationary pressure and a grim economic outlook.
RBI Deputy Governor and MPC member Michael Debabrata Patra pointed out that with inflation prints above the upper tolerance band, the central bank's monetary policy is forced into a standstill even when there is space available to push growth momentum and alleviate the effects of the coronavirus pandemic on the economy.
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"In fact, if inflation persists above the upper tolerance band for one more quarter, monetary policy will be constrained by mandate to undertake remedial action," he said.
Meanwhile, external member Chetan Ghate pointed out that he had been advocating a more cautious path for policy rate reductions since February 2019, adding that he has, however, been in a minority in the committee.
"Future MPCs should not go soft on inflation," he remarked.