Price trend a bother for RBI

Mumbai: Worry that rising consumer prices will threaten the central bank's inflation target of 4 per cent led the majority of the Reserve Bank of India's monetary policy committee to vote to keep rates steady, according to the minutes issued on Wednesday.

Members also said at their October 4 meeting they expected that a slowdown in growth to its lowest in more than three years in the April-June quarter could prove transitory, and it would be prudent to wait for more evidence.

"It is important to recognise near- and medium-term risks to the inflation outlook," RBI governor Urjit Patel had said, according to the minutes of the meeting.

"There is a need for more data to assess whether the recent headwinds in overall GDP growth prints are transient or sustained."

The RBI's six-member monetary policy committee voted 5-1 to keep the repo rate unchanged at the October 4 meeting after inflation in August surged to 3.36 per cent from a year earlier - not far off the RBI's 4 per cent target.

However, data after the meeting showed inflation held steady at 3.28 per cent in September, in line with a downwardly revised number for August, although analysts said they expected the repo rate to remain unchanged for now.

Michael Patra, executive director of the RBI, had reiterated a call made earlier in the year that the RBI even needed to be ready to raise rates, the minutes said.

"It is time to be in readiness to raise the policy rate to quell the underlying drivers of inflation if they strengthen further," Patra said.

The MPC had also expressed concern that the implementation of farm loan waivers by states may result in possible fiscal slippages and undermine the quality of public spending, thereby exerting pressure on prices.

Deputy governor Viral Acharya had said that the RBI remained committed to improving the transmission of monetary policy.


Patel had also said that the government should swiftly address the teething troubles related to the GST to improve immediate growth prospects.

Patel had pointed out that implementation of the GST had rendered prospects for the manufacturing sector uncertain in the short-term, which might further delay the acceleration in investment activity.


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