MPC members indicate more rate hikes

 

The monetary policy committee of The RBI  as a measure to tackle inflation indicated a rise in interest rate . The interest rate was increased by 90 basis point in may, and 4.9 per cent in June by the committee. Consumer price index based inflation stayed above the upper band of 6 per cent, for all the five months of 2022. The objective is  to take the rate above the four quarters ahead of forecast , knowing that that the policy works with lags. The aim is to bring down inflation by the last quarter, or the beginning of next quarter and progressively align with the target in 2023-24.  In June MPC increased to 6.7 per cent from 5.7 per cent. Michael Patra ( RBI deputy governor) said the inflation to fall below 6 per cent by fourth quarter, and by 2023-24 , it should be moderate to 4. This is the most sensible result in current situation.  Shaktikanta Das (RBI Governor) pointed out that the repo rate was still lower than pre pandemic and liquidity in bank higher than prior to covid 19 crisis. The June policy review the committee changed the wording of its stance, it said it remained focused on withdrawal of accommodation as against the may policy where it said , it also decided to remain accommodative while focussed on withdrawal of accommodation. The policy recently have been unambiguously focused on withdrawal of accommodation in terms of liquidity and rates, the change in wording as a continuation and fine-tuning of their recent approach. The withdrawal of accommodation stance, as I see it  would be non disruptive to the recovery and rather strengthen the efforts and anchor inflation expectations, Das said.  There is need for a real policy rate to a modestly positive level consistent with emerging inflation and growth dynamics, says external member Jayanath Varma. The real interest rate is the difference between the repo rate and inflation, which is around-2% now.  “If in 2024 the CPI based inflation moderate to 4% , as alluded by Dr. Patra , then our expectation that the additional repo hikes in this tightening cycle will be limited to 60 bps, will yield a positive real rate to 1.5%” Aditi Nayar, Chief Economist , ICRA.