DNA Money Edit | MPC's dilemma: to hike interest rate or not

The RBI deputy governor, Viral Acharya's insistence that he is likely to shift decisively to vote for a "beginning of withdrawal of accommodation" in the next Monetary Policy Committee (MPC) meet on June 5 and 6 has flagged worries of a quick upward revision of interest rates. In the first week of April, the six-member MPC, headed by RBI Governor Urjit Patel, decided to keep the repo rate unchanged at 6%, with RBI executive director Michael Patra voting for a hike and five others voting for a status quo.

Even as inflation growth slipped down in recent months, we continue to face some upside risks. The governor wanted to wait for more data and watch how various risks to inflation evolve, going forward.

The sole dissenter Patra has maintained his vote for a 25-basis points increase. He strongly believes that most components in the consumer price index (CPI), barring food and fuel, have seen 5% inflation over the past three months. He avers the inflation in this category might peak close to 6% in June before settling at a little above 5%. Will the inflation test the upper tolerance limit of the inflation band? Patra doesn't rule out such a probability.