While the Reserve Bank’s Monetary Policy Committee (MPC) retained the accommodative stance and kept the main policy rates unchanged in the review earlier this month, Jayanth R Varma, a member of the MPC, has strongly argued for tightening the policy stating that inflation and growth risks are “well beyond the control” of the MPC.
“A pattern of policy making in slow motion that is guided by an excessive desire to avoid surprises is no longer appropriate,” Varma, professor, IIM Ahmedabad, said in the policy review, according to the minutes of the MPC meeting held on October 8.
“Since August, I have become increasingly concerned about two other risks that have become salient globally in recent weeks. The first is that the ongoing transition to green energy worldwide poses a significant risk of creating a series of energy price shocks similar to that in the 1970s. This means that the upside risks to long term inflation and to inflation expectations are now more aggravated,” Varma said proposing a hike in reverse repo rate.
“I am not in favour of the decision to keep the reverse repo rate at 3.35 per cent, and vote against the
accommodative stance,” Varma said.
According to RBI Governor Shaktikanta Das, going forward, if there are no spells of unseasonal rains, food inflation is likely to register significant moderation in the immediate term, aided by record kharif production, more than adequate food stocks, supply-side measures and favourable base effects.
“It is felt that continued monetary support is necessary as the economic recovery process even now is delicately poised and growth is yet to take firmer roots,” Das said.