Business Other News 22 Feb 2018 Growth pickup halts ...

Growth pickup halts rate hike

DECCAN CHRONICLE.
Published Feb 22, 2018, 7:14 am IST
Updated Feb 22, 2018, 7:14 am IST
RBI-led MPC maintained status quo despite fears of a rise in inflation.
RBI governor Urjit Patel, however, felt that the incoming data should provide greater clarity about the persistence of inflationary pressures.
 RBI governor Urjit Patel, however, felt that the incoming data should provide greater clarity about the persistence of inflationary pressures.

MUMBAI: While the upside risk to inflation has increased in recent months, the minutes of the latest RBI-led monetary policy committee (MPC) meeting revea-led that the nascent stage of recovery in domestic growth was one of the factor, which went in favour of maintaining status quo on policy rates. When  one member of the committee voted for a 25 basis point hike in interest rate, other members of the committee arg-ued for a ‘wait and watch’ approach till more clarity emerges on growth-inflation dynamics.

Michael Debabrata Patra voted for an increase of 25 basis points arguing that inflation is likely to drift well above target and turnaround in growth has likely begun in the third quarter of 2017-18. RBI governor Urjit Patel, however, felt that the incoming data should provide greater clarity about the persistence of inflationary pressures.

 

“The economic recovery is also at a nascent stage and calls for a cautious approach at this juncture. I, therefore, vote for keeping the policy repo rate on hold while maintaining a neutral stance,” Mr Patel said. Echoing a similar view on policy stance, Viral Acharya, deputy governor of RBI, said that a change in stance from ‘neutral’ to ‘withdrawal of accommodation’ would be justified only if growth remains robust and inflation prints continue to project headline inflation well above the target on a one year forward basis.

 

In the meantime, he highlighted the need to focus on pushing forward the work that the Reserve Bank has undertaken in improving the transmission of policy rate changes to the real sector and taking the resolution framework of stressed assets to its logical conclusion. Meanwhile Pami Dua, the only woman in the six-member MPC raised concern regarding global financial market volatility against the backdrop of rising global bond yields and uncertainty regarding the normalisation of monetary policy by major advanced economies. “Thus, with upside risks to inflation and lacklustre growth prospects, a wait and watch strategy with status quo in policy interest rate and a neutral stance is currently recommended,” she added.

 

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