What's keeping RBI's finger off the rate cut trigger? Mint Street minutes offer a clue

The Reserve Bank of India has been keeping away from lowering interest rates so far as repeated food price shocks risk hurting its effort to curb inflation durably, the minutes of the monetary policy meeting showed on Thursday.

The monetary policy committee voted five-to-one to pause for the sixth straight review and retained its stance on “withdrawal of accommodation,” suggesting it’s in no hurry to cut interest rates until inflation eases sustainably. 

“Monetary policy must remain vigilant and not assume that our job on the inflation front is over,” said Governor Shaktikanta Das. 

“We must remain committed to successfully navigating the ‘last mile’ of disinflation, which can be sticky.”

While retail inflation cooled to a three-month low in January, price gains remain well above the central bank’s 4% target due to volatile food costs. 

Food inflation, which makes up about half of the consumer price basket, moderated to 8.30% in January, from 9.53% in December. 

Warmer-than-normal temperatures across large parts of the country also risk hurting crops and may keep prices higher. To keep costs in check ahead of polls in the next few months, India has already curbed exports of wheat, sugar and most rice varieties, and cracked down on hoarding.

Deputy governor Michael Patra said the outlook for the Indian economy remains highly sensitive to inflation risks and restoring price stability remains key. “It is only when inflation subsides and stays close to the target lastingly that policy restraint can be eased,” Patra said. 

Jayanth Rama Varma, who voted against the rate move and stance, said that monetary policy should give more room for the economy to grow as there is no evidence that the economy is overheating. 

“The time has come for the MPC to send a clear signal that it takes its dual mandate of inflation and growth seriously,” he said. Varma favored reducing the repurchase rate by 25 basis points, and to change the stance to neutral.