RBI MPC’s Jayanth Varma calls 35 bps rate hike ‘unwarranted’

As per the minutes of the MPC meeting, member Jayanth Varma voted against the rate hike of 35 bps announced by the rate-setting panel earlier this month, calling it unwarranted in the context of reduced inflationary pressures and heightened growth concerns.

“Much of the impact of this large front-loaded monetary policy action is yet to be felt in the real economy. For these reasons, I believe that 6.25% itself very likely overshoots the repo rate needed to achieve price stability, and poses an unwarranted risk to economic growth,” he said.

While citing the reason for voting against shifting the stance, Varma said that withdrawing the accommodative stance could damage the fragile growth outlook.

On the other hand, considering the uncertain outlook, Reserve Bank of India (RBI) Governor Shaktikanta Das said, “I am of the view that a premature pause in monetary policy action would be a costly policy error at this juncture. Given the uncertain outlook, it may engender a situation where we may find ourselves striving to do a catch-up through stronger policy actions in the subsequent meetings to ward-off accentuated inflationary pressures.”

The Reserve Bank of India on December 7 raised the repo rate by 35 basis points to 6.25%, while maintaining its stance of focusing on the “withdrawal of accommodation”.

The MPC has raised the repo rate by 225 basis points in about eight months.

The repo rate hike decision was taken by a majority of five out of the six members of the Monetary Policy Committee. Four out of six members voted in favour of retaining the stance of focusing on the withdrawal of accommodation.
RBI Governor Shaktikanta Das had said the MPC felt that a further calibrated approach to monetary policy action is essential in order to keep inflation expectations anchored, break the core inflation persistence, and contain second round effects.

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