Inflation fall is slow, uneven: RBI Guv

Mumbai: The current policy rate of 6.5 per cent is broadly balanced, and any justification for policy easing at this juncture can be misleading, Reserve Bank Governor Shaktikanta Das opined while voting for the status quo on the repo rate in the MPC, where two members advocated rate cut.

The meeting of the Monetary Policy Committee (MPC), which decides on the policy rate, was held from August 6 to 8. On August 8, the Reserve Bank of India (RBI) announced to keep the benchmark interest rate unchanged for the ninth time in a row, saying it cannot afford to look through persisting high food inflation and has to remain vigilant to prevent spillover. According to the minutes of the last Monetary Policy Committee (MPC) released by the RBI on Thursday, the calibrated increase in policy repo rate by 250 basis points since May 2022 and subsequent change of stance to the withdrawal of accommodation have facilitated gradual disinflation over 2022-23.

“With a forecast of 4.5 per cent headline inflation for 2024-25, the present policy Repo rate is broadly in balance and avoids costly sacrifice of domestic economic activity,” the minutes quoted Das as saying.

At this stage, he further said that when durable disinflation to the target is still a work in progress, the issue of equilibrium natural interest rate is premature.

“Policymaking in the real world cannot be based on an abstract, theoretical and model-specific construct, which is unobservable and time-varying. Hence, any justification for policy easing based on so-called high real rates can be misleading,” Das said.

He also observed that inflation is gradually trending down, but the pace is slow and uneven. The durable alignment of inflation to the target of 4 per cent is still some distance away.