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RBI Monetary Policy: Jayanth Varma disagreed with policy stance, shows statement

On earlier occasions also, Varma had dissented on MPC's view on policy stance an forward guidance arguing that guidance needs to be more realistic not to hurt the credibility of the panel.

August 05, 2022 / 12:25 PM IST
Jayanth Varma, Member, MPC, RBI

Jayanth Varma, Member, MPC, RBI

Jayanth R Varma, one of the six members of monetary policy committee (MPC), expressed reservations on the continuation of withdrawal of accommodative stance, showed the policy document.

Five members of the panel, Shashanka Bhide, Ashima Goyal, Rajiv Ranjan, Michael Debabrata Patra and Shaktikanta Das, voted to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

However, Varma expressed reservations on this part of the resolution, the statement showed.

On earlier occasions also, Varma had dissented on MPC's view on policy stance an forward guidance arguing that guidance needs to be more realistic not to hurt the credibility of the panel.

All members of the MPC, including Varma, unanimously voted to increase the policy repo rate by 50 basis points to 5.40 per cent.

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With the latest hike from the six-member MPC, the repo rate now stands at 5.4 percent. Repo is the rate at which the central bank lends short-term funds to banks.

Changes in this rate typically gets transmitted to the broader banking system. The MPC has cumulatively hiked repo rate by 140 bps in the current rate hike cycle.

The rate hike came on expected lines.

Most economists had predicted a 25-50 bps rate hike in the backdrop of a consistently high retail inflation that is hurting the common man. Already, the MPC had hiked the repo rate by 90 bps so far in this rate cycle.

The retail inflation has averaged above 6 percent for two consecutive quarters. If inflation stays above that level for three consecutive quarters, the MPC would have to explain the failure to the government. The RBI has now projected retail inflation at 6.7 per cent for FY 23 and real GDP growth at 7.2 per cent in FY 23.

Announcing the policy, Das highlighted the panel's concerns on high inflation.

"The inflation trajectory is now poised at a decisive point. While there are incipient signs of a confluence of factors that could lead to further softening of domestic inflationary pressures, there remain significant uncertainties," Das said.

The MPC’s rate hike is intended at curbing demand, and, thereby, controlling high inflation. However, much of the risks to inflation are emerging from external factors, including a huge upswing in global commodity prices and foreign fund outflows.

Foreign investors have pulled out $26.83 billion from Indian markets so far this year. The MPC is also under pressure because of a falling rupee, which has fallen close to 7 percent this year.

The latest round of rate hike is unlikely to prompt banks to pass on the impact in a big way, analysts say. That’s because banks have already hiked rates by a significant margin already this year. A further rate hike in loan rates could affect the nascent recovery seen in the economy in the post-pandemic period.
Dinesh Unnikrishnan is Editor-Banking & Finance at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday.
first published: Aug 5, 2022 12:25 pm
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