MPC Minutes: Jayanth Varma continues to express reservations on stance

Jayanth Varma, an academic, is a member of India's rate-setting panel

Jayanth Varma, a member of the Monetary Policy Committee (MPC), has continued to express reservations on the policy stance terming it 'harmless ritualism'. Varma argued that the sharp disconnect between the stance and action has completely nullified the importance of the stance itself.

"This disconnect between stance and action has completely hollowed out whatever meaning the stance might have originally had, and turned it into a harmless ritualism. So I am content with expressing reservations about the stance," Varma said.

In the latest round of meeting, the MPC kept the repo rate, at which the RBI lends short-term funds to banks, unchanged at 6.5 percent in the meeting and said future actions will depend on incoming data.

ALSO READ: MPC Minutes: Members express caution on near-term pick up in inflation

The decision came in the wake of a recent spike in inflation triggered by high prices of food items. One basis point is one-hundredth of a percentage point. The MPC kept the repo rate, or the rate at which the central bank lends short-term funds to banks, at 6.5 percent.

This isn't the first time Varma is differing from the majority opinion of the panel on the policy stance. In the last policy too, Varma had said that the stance has become increasingly disconnected from the reality.

"My reservations remain the same as in the past. However, this would be the third successive meeting at which the repo rate has been left unchanged (assuming that the MPC decides to pause now)," Varma added.

Varma added that there is a risk in calling victory over inflation too early and the MPC needs to watch for the trend over a period of time. " Just as a couple of low readings do not call for celebration, it is equally true that a couple of very high readings do not call for panic. What is important is the projected trajectory of inflation over the next several quarters," Varma added.

Varma expect the continuing slowdown in China to keep a lid on commodity prices. "Moreover, rains in July have attenuated the monsoon risks, though there are continuing worries about the spatio-temporal distribution," Varma added.

Since May 2022, the RBI has hiked interest rates by 250 bps as part of its fight against inflation. India's headline retail inflation rate crashed past the upper bound of the RBI's 2-6 percent tolerance range in July and shot up to a 15-month high of 7.44 percent, spurred on by a massive increase in vegetable prices.

At 7.44 percent, the Consumer Price Index (CPI) inflation print for July is a huge 257 basis points higher than the revised June number of 4.87 percent and is the 46th month in a row that it has come in above the RBI's medium-term target of 4 percent.

One basis point is one-hundredth of a percentage point.