MPC's minutes reflect discomfort with inflation, changing macro realities, says Emkay

The minutes of April 2022 monetary policy committee meeting reaffirmed the MPC's reaction function pivot, reflecting its discomfort with inflation amid changing macro economic realities, said financial services company Emkay Global Financial Services.

"The persistent inflation narrative saw coherence among the members, with most believing that irrespective of the source of inflation (supply or demand side), current high levels require a policy tilt and taming of inflation expectations," it said.

Even though the economic outlook is being impacted by huge global crosscurrents and shifts -- the net impact of which is still hard to gauge, the RBI's rhetoric has moved in a hawkish direction.


However, most members of the MPC believe that amid the economic normalisation, the gradual rebalancing of liquidity and the move toward equilibrium real rates are consistent with non-inflationary growth, it added.

The Reserve Bank of India's Monetary Policy Committee (MPC), in its latest meeting, kept policy rates unchanged, besides retaining an "accommodative" stance. It has now prioritised inflation over growth.

Notably, Consumer Price Index or retail inflation in India rose steeply in March to 6.95 per cent, which was above Reserve Bank of India's upper tolerance band of 6 per cent for three consecutive months in a row.

With inflation likely to exceed RBI's upper tolerance band of 6 per cent for three consecutive quarters, especially if energy prices remain elevated, the RBI is likely to get quite perturbed, it said.

"With higher food price pressure in the near term (summer effect, international prices, higher transport costs, supply chains) and persistent input cost pressure in the non-food segment, we see inflation crossing 6 per cent in FY23," the report said.