RBI policymakers want to see decisive inflation decline before policy shift

The Reserve Bank of India's (RBI) Monetary Policy Committee needs to see a decisive decline in inflation over a series of monthly readings before it shifts stance, which would otherwise be premature, deputy governor Michael Patra said on Wednesday while voting along with five other members of the MPC for raising the key lending rate by 35 basis points earlier this month.

RBI Governor Shaktikanta Das also said that a premature pause in monetary policy action would be a costly policy error at this juncture.

The RBI Governor also said that in a tightening cycle, especially in a world of high uncertainty, giving out explicit forward guidance on the future path of monetary policy would be counterproductive.

This may result in the market and its participants overshooting the actual play out of real conditions, Das opined.

On withdrawal of accommodation stance, the RBI Governor said that considering the prevailing policy repo rate, liquidity conditions and the expected trajectory of inflation over the next several months, it is essential to persist with the stance of withdrawal of accommodation.

The RBI MPC has recently hiked the repo rate by 35 basis points (bps) to 6.25%. The RBI policy rate is now at its highest level since August 2018.