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India’s Rate-Setters Remain Worried on Inflation, Minutes Show

By Ruchi Bhatia
A fruit stand vendor at a weekly market in Silhawad, Madhya Pradesh, India, on Wednesday, Nov. 15, 2023. Keeping food prices and inflation in check is a key priority for Prime Minister Narendra Modi and his government as election season hots up. Photographer: Kanishka Sonthalia/Bloomberg (Kanishka Sonthalia/Bloomberg)

(Bloomberg) -- India’s rate-setters remain vigilant on inflation as risks from geopolitical tensions and volatile food prices continue to linger, minutes of the central bank’s monetary policy committee meeting showed Wednesday.

The Reserve Bank of India’s monetary policy committee kept interest rates unchanged earlier this month and tweaked its stance to neutral, signaling it may be preparing to ease. 

“The best approach now would be to remain flexible and wait for more evidence of inflation aligning durably with the target,” said Governor Shaktikanta Das. “We cannot risk another bout of inflation.” 

Two of the three new external members also supported Das’ concerns on inflation. Noted economist Saugata Bhattacharya said the “arduous battle against inflation is far from won” and policy easing would need careful evaluation. Ram Singh, another external member, said that food inflation, which makes up about half of the consumer price basket, remains uncertain and there’s a case to remain “vigilant” on prices.  

India’s inflation accelerated at the fastest pace this year in September due to a surge in food costs. Price gains are expected remain elevated in October, giving reasons for the central bank to remain cautious and further complicating the timing of a rate cut. Economists are pushing back their forecasts for a cut from December to next year.

The central bank’s governor has repeatedly pushed back calls for a rate cut without bringing inflation down to within its target range of 4% on a durable basis. Last week, Das reiterated that rate cut at this stage would be very risky and he is in no hurry to join the wave of easing by global policymakers. 

Here’s what other members in the panel said: 

  • Das’s deputy Michael Patra said reducing restraint too quickly may negate the progress made on disinflation
  • External member Nagesh Kumar, who voted for a quarter point reduction at the meeting, said domestic demand was weak and the time had come to normalize monetary policy
  • Rajiv Ranjan, an executive director at RBI, said the change in stance didn’t imply dropping the guard on inflation.
    • “Considering the uncertainties still prevailing on the global front, a cautious data dependent approach with regard to further course of monetary policy actions is called for”

--With assistance from Preeti Soni.

©2024 Bloomberg L.P.