Inflation as Banquo's ghost: It's back to haunt RBI's policy panel

Just when the central bank might have thought it had beaten back the inflation beast, it has returned, compelling action

- MYTHILI BHUSNURMATH

Monetary policy announcements, rather rate-setting decisions, have an air of mystery about them. Given their outsize impact on financial markets, a lingering sense of ‘smoke-and-mirrors’ is par for the course whenever monetary policy committees (MPCs) meet.

In that sense, the just-concluded meeting of the Reserve Bank of India’s (RBI) MPC was an exception to the rule. It was a relatively open-and-shut case, with markets unanimous that the MPC would opt for the status quo. Even so, there was just that soupçon of uncertainty up to the moment of Governor Shaktikanta Das’s statement on Thursday morning, confirming that yes, markets had called it right: The policy—or repo—rate, at which RBI infuses liquidity into the system, has been kept unchanged at 6.5% for the third successive time. So has the stance, ‘focused on withdrawal of accommodation.’

The decision, at the third of the six MPC meetings scheduled for 2023-24, is of a piece with decisions taken earlier. Rewind to the first MPC meet of this fiscal year and the Governor’s statement in April 2023. “The Monetary Policy Committee decided unanimously to keep the policy repo rate unchanged at 6.50%… with readiness to act, should the situation so warrant… The MPC also decided …to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. Let me emphasize that the decision to pause on the repo rate is for this meeting only" (emphasis added).