In its latest monetary policy review, India’s central bank cut rates by 0.25% to bring down the benchmark repo rate to 6%. While the six member monetary policy committee consisting of the RBI Governor, deputy governors and appointed members voted in favour of the rate cut with 4-2 majority. The two dissenting members felt that there are underlying inflation concerns which could push up everything from headline inflation numbers to inflation forecast in the short to medium term.
This was revealed in the monetary policy meeting minutes released by the Reserve Bank of India. Concerned about the rising crude oil prices and their ability to impact the inflation outlook, RBI deputy governor Viral Acharya and nominee member Chetan Ghate voted against cutting the interest rates, the minutes showed.
While Acharya said that past experience with volatility in oil prices should teach us some lessons in applying extreme caution before cutting rates, Ghate said that core inflation remains at a worrying level of around 5% and rising crude prices could make it a further challenge.
Meanwhile, even those who voted in favour of a rate cut didn’t fully discount monitoring inflation led by fuel prices. RBI Governor Shaktikanta Das agreed with others that constant monitoring of oil prices is necessary to tackle inflation effects, if any. Meanwhile Ravindra Dholakia argued that oil prices shouldn’t concern the committee too much unless global prices for the Brent Crude basket reach the level of $80-$85 on a “durable basis”.
It’s not just about oil prices. Dissenting members also expressed concern about sticky food inflation and said that a more cautious approach is necessary in this regard even as food remains in deflation. They argued that rising food prices along with oil could result in inflationary expectations rising again.