According to the minutes of the rate-setting panel that were released on Wednesday, December 21, RBI Governor Shaktikanta Das said the central bank will continue to hike the repo rate to ward off accentuated inflationary pressures.

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"I am of the view that a premature pause in monetary policy action would be a costly policy error at this juncture. Given the uncertain outlook, it may engender a situation where we may find ourselves striving to do a catch-up through stronger policy actions in the subsequent meetings to ward off accentuated inflationary pressures," Das said.

The six-member Monetary Policy Committee (MPC), headed by Das, announced its decision on December 7 to hike the policy repo rate — for a fifth consecutive time — by 35 basis points to 6.25 percent.

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He said, "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."

"In such circumstances, it would be prudent to keep Arjuna’s eye on the evolving inflation dynamics and be ready to act as may be necessary. Monetary policy has to be nimble to address any emerging risk to the price stability, while keeping in mind the objective of growth," the governor said.

Das observed that successive rate actions since May 2022 are working through the system. "Considering the elevated inflation levels, especially the stickiness in core inflation, further calibrated monetary policy action is warranted to contain build-up in underlying inflationary pressures, keep inflation expectations anchored, and bring inflation closer to the target rate of 4 percent over the medium term," he said.

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The governor further said headline inflation is moderating, albeit slowly, "While the worst of inflation is behind us, it remains above the upper tolerance level. It is expected to decline in H1:2023-24 but would still be well above the target."

"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," Das added.

(Edited by : Shoma Bhattacharjee)

First Published:Dec 21, 2022 6:07 PM IST