India’s success in the disinflation process should not distract the central bank’s monetary policy committee (MPC) from the inflation trajectory’s vulnerability to frequent supply-side shocks, governor Shaktikanta Das wrote in the minutes of the April policy meeting released on Friday (Apr 19).

Earlier this month, the six-member rate-setting committee kept the main lending rate at 6.5 per cent, in line with expectations. It had raised the repo rate by a total of 250 basis points between May 2022 and February 2023.

“Going ahead, while monetary policy seems to be on the right track, it is too early to ease guard against inflation,” said Rajiv Ranjan, the central bank’s executive director and MPC member.

Five out of the six MPC members voted in favour of holding rates, with the monetary policy stance of ‘withdrawal of accommodation’ retained by a similar margin of votes.

External member Jayanth Varma voted for a 25 basis points rate cut for a second consecutive meeting and said the current real interest rate of around 2 per cent is excessive.

“The fact that economic growth in 2024-25 is projected to slow by over half a per cent relative to 2023-24 is a reminder that high interest rates entail a growth sacrifice,” he wrote.

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The central bank has projected 7 per cent growth in the fiscal year that started in April, compared with an estimated 7.6 per cent in the year ended March 31.

Retail inflation is expected to average 4.5 per cent this fiscal year but the recent flare up in tensions in the Middle East could push up global oil and commodity prices and boost imported inflation in India going ahead.

“Downward pressure on inflation must be maintained until a better balance of risks becomes evident and the layers of uncertainty clouding the near-term clear away,” central bank deputy governor Michael Patra wrote.

Governor Das said the overlapping food price shocks, apart from imparting volatility to headline inflation, may also result in spillovers to core inflation.

Annual retail inflation in March was 4.85 per cent, lower than 5.09 per cent in February, and below the 4.91 per cent forecast in a Reuters poll.

Interest rate cuts in India are “off the table” in fiscal year 2024/25 given the change in the Federal Reserve’s policy path and strong growth in India, analysts at Morgan Stanley said in a note earlier this week. REUTERS