MPC minutes stress caution amid inflation concerns

The latest minutes from Monetary Policy Committee (MPC) delve upon the importance of remaining vigilant against inflationary pressures, despite the nation's progress in curbing inflation, according to Governor Shaktikanta Das.

In the minutes of the April policy meeting released on Friday, Governor Das highlighted the potential vulnerability of the inflation trajectory to frequent supply-side shocks, cautioning against complacency in monetary policy decisions.

During the meeting earlier this month, the six-member committee opted to maintain the main lending rate at 6.5 per cent, aligning with market expectations. The decision to keep rates unchanged was supported by five out of six MPC members, with the stance of 'withdrawal of accommodation' retained by a similar margin of votes.

However, external member Jayanth Varma dissented, advocating for a 25 basis points rate cut for the second consecutive meeting. Varma expressed concerns about the current real interest rate, which he deemed excessive, and emphasized the potential growth sacrifice associated with high interest rates.

While the central bank has projected a 7 per cent growth rate for the fiscal year beginning in April, concerns remain regarding the impact of global developments on India's inflation outlook. Recent tensions in the Middle East could exacerbate global oil and commodity prices, potentially leading to imported inflation in India.

Deputy Governor Michael Patra stressed the importance of maintaining downward pressure on inflation until a clearer picture emerges, acknowledging the uncertainty clouding the near-term economic landscape.

Governor Das echoed these sentiments, highlighting the impact of overlapping food price shocks on both headline and core inflation. Despite retail inflation easing to 4.85 per cent in March, below the forecasted 4.91 per cent, the central bank remains cautious about potential inflationary pressures.

Analysts at Morgan Stanley stressed that interest rate cuts are unlikely in the current fiscal year, given the Federal Reserve's policy stance and India's robust growth trajectory.

(With Reuters inputs)