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NEW DELHI: The minutes of the Monetary Policy Committee’s unscheduled May 2-4 meeting, in which a rate hike was announced, show a much greater degree of urgency concerning inflation among members of the rate-setting panel.

Prime among the factors that prompted Reserve Bank of India Governor Shaktikanta Das to announce the rate hike on May 4, is the war between Russia and Ukraine which has resulted in a surge in global commodity prices, the MPC minutes showed.

“…the war in Europe – with its attendant consequences for supply chains, shortages and prices – is now expected to last much longer than earlier anticipated. Under these circumstances, the inflation print for April – to be released on May 12th – is expected to be further elevated,” Das statement in the minutes said.

“Hence, it becomes necessary to act through an off-cycle policy meeting. Waiting for one month till the June MPC would mean losing that much time while war related inflationary pressures accentuated. Further, it may necessitate a much stronger action in the June MPC which is avoidable.”

As predicted by the head of the RBI, the Consumer Price Index-based inflation print for April was indeed elevated – jumping to an eight-year high of 7.79 per cent.

As such, the MPC is widely expected to further raise the repo rate from its current level of 4.40 per cent.

While RBI Executive Director Rajiv Ranjan said that the sharp escalation of cost-push pressures was translating into a generalised upsurge in inflation and pointed to a significant change in drivers of inflation, Das said that the RBI was committed to controlling inflation through all possible instruments.

According to Ranjan, the conflict in Europe had fundamentally altered inflation dynamics.

“The broadening of inflation pressures is also reflected in various CPI diffusion indices. There has been a sharp pick-up in these indices for price increases at or above a seasonally adjusted annualised rate (SAAR) of 6 per cent, especially in March, confirming that it is not just incidence of broadening of price increases in CPI but also that of price increases at a very high rate,” Ranjan said.


RBI Deputy Governor Michael Patra said that the approach of reversing the pandemic-era extraordinary accommodation was the right approach in the current environment.

Patra included both rate actions and liquidity measures while referring to extraordinary accommodation. From March to May of 2020, the RBI slashed the repo rate by 115 basis points to a record low of 4 per cent, while infusing massive amounts of liquidity into the banking system.

“When it is done, we will have reached a stage of neutral accommodation – in contrast to extraordinary pandemic time accommodation – from where the next stage responses can be calibrated. Accordingly, I vote for an increase of 40 basis points in the policy rate – reversing the reduction in the policy rate effected on May 22, 2020,” read Patra’s portion in the minutes.

The Deputy Governor, however, also warned of

risks to India’s economic growth while saying that monetary policymakers the world over were being compelled to address inflation issues emanating from supply-side shocks rather than demand-led factors.

“…the momentum of the recovery is still below full strength, warranting policy support,” Patra said, adding that globally stagflation was transitioning from a risk scenario to a baseline scenario.

Stagflation refers to an environment of high inflation and weak growth.


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