Five members says that the inflation target of 4% was paramount to them as they unanimously voted for a rate hike
The rate setting committee, Monetary Policy Committee (MPC) voted for two consecutive rates hikes as an insurance cover to insulate the economy from inflation. Economist Chetan Ghate said that while the final inflationary impact will depend on the exact procurement policy which is yet to be announced, given the magnitude of the minimum support price (MSP) surprise, it is opportune to front-load a rate hike, somewhat akin to an "insurance policy".
Five members said that the inflation target of 4% was paramount to them as they unanimously voted for a rate hike. Most of said they were uncertain about the impact of the increase of the MSP on the kharif crops hike in housing rent allowance for central government employees and the volatile movement in the oil prices, so the time was ripe for a rate hike.
IIM Ahmedabad Professor Ravindra H Dholakia was the only MPC member who voted against a rate hike. He said, "This is certainly not the time and environment to hike the policy rate. Nor is it the time to tinker with the policy stance. Prudence lies in maintaining the status quo." He feared that there were risks to growth and the oil prices were softening.
RBI governor Urjit Patel, voted for a rate hike to keep up the mandated inflation target of 4%. "As inflation risks have continued to be elevated, I vote for an increase in the policy repo rate by 0.25%. This action is a necessary step towards securing the mandated 4 %t inflation target on a durable basis for a rate hike fearing rising trade protectionism impacting domestic investment and growth prospects by dampening India's exports," Patel said. Neutral stance, he said, is due to a number of uncertainties despite domestic growth impulses continuing to be strong.
Michael Patra, executive director voted for a rate hike fearing that RBI ran a risk of failing to achieve the inflation target, and that risk of being perceived as willing to accommodate deviations from the mandated inflation target of 4% has increased significantly. He said that the economy is poised for higher growth in 2018-19, but added the drivers of growth are "amorphous". "International crude prices and global spillovers from trade wars, monetary policy normalisation and geopolitical tensions present significant risks to growth prospects," Patra said.
"Rising trade protectionism may impact domestic investment and growth prospects by dampening India's exports. Overall, economic activity appears to be buoyant with GDP growth for 2018-19 projected at 7.4 %, same as in the June policy; and 7.5 % for Q1 of 2019- 20," the RBI minutes said.
RBI deputy governor Viral Acharya said, "The rate hike of June followed by another rate hike will help rein in demand pressures and manage inflation expectations. There is an important interim uncertainty in the form of tariff wars which can rock global growth, financial markets and inflation in abrupt and unexpected ways, I vote to retain the neutral stance of the monetary policy."
Pami Dua voted for a rate hike after several risks to inflation from the hike in the MSP for all kharif crops, HRA revisions for central government employees and crude oil price movements.
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RBI governor Urjit Patel, voted for a rate hike to keep up the mandated inflation target of 4%. "As inflation risks have continued to be elevated, I vote for an increase in the policy repo rate by 0.25%. This action is a necessary step towards securing the mandated 4 %t inflation target on a durable basis for a rate hike fearing rising trade protectionism impacting domestic investment and growth prospects by dampening India's exports," Patel said. Neutral stance, he said, is due to a number of uncertainties despite domestic growth impulses continuing to be strong.
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