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Business EconomyPosted at: Oct 20 2018 6:29PM


RBI's monetary policy committee highlights inflation spike risk

Mumbai, Oct 20 (UNI) The monetary policy committee of Reserve Bank
of India (RBI) sees a risk of rising headline inflation from high
crude oil prices and a weak rupee, indicating potential rate hikes
ahead, even as it held key rates unchanged at its last meeting.
Minutes of RBI’s monetary policy committee’s (MPC) October meeting,
released on Friday, showed most committee members highlighted the
upside risks to inflation while preferring to wait for greater
clarity on price pressures.
Five of six MPC members had voted for keeping rates on hold at 6.50
per cent as part of ''calibrated tightening'' to keep retail
inflation at four per cent, as per minutes of the meeting released
Friday.
Pami Dua, Ravindra Dholakia, Michael Debabrata Patra, Viral Acharya
and Urjit Patel had voted in favour of keeping the policy repo rate
unchanged, the RBI said in its minutes of of the MPC meeting held
between October 3-5.
MPC member Chetan Ghate voted for an increase in the policy rate by
25 basis points (bps), RBI said.
During its fourth bi-monthly monetary policy review that kept the
key repo rate unchanged at 6.50 per cent, the RBI’s MPC noted that
global headwind in the form of escalating trade tensions, volatile
and rising oil prices and tightening of global financial conditions
pose substantial risks to the growth and inflation outlook.
''It is, therefore, imperative to further strengthen domestic
macroeconomic fundamentals,'' the RBI had said in its monetary
policy.
The panel also shifted its policy stance to ‘calibrated tightening
from ‘neutral’.
''The likelihood of oil prices remaining elevated rules out a rate
cut anytime soon,'' RBI Deputy Governor Viral Acharya wrote in the
minutes.
''Given the flexible inflation-targeting mandate of the MPC, it
seems important to signal commitment to keeping to the mandate and
move forward carefully at an appropriate time,'' it said.
The inflation outlook faces several upside pressures such as the
effect of higher state-mandated prices of summer-sown crops, a rise
in crude oil prices and increased volatility in financial markets of
emerging economies, RBI Governor Patel said.
Other risks include rising input costs, fiscal slippage at the
federal or provincial levels and the effects of staggered house
rental allowance revisions by state governments, he said.
Given inflation risks have been persistent, and to achieve the
inflation target, it is apposite to change the stance of monetary
policy from neutral to calibrated tightening, Mr Patel said.
Mr Ghate, who had voted for a 25 basis points increase in the repo
rate, said the appropriate risk-management approach would be to act
now -- given the strong possibility of the "un-anchoring" of
inflationary expectations.
UNI JS SS NP1830
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