Bank reserves of the Indian monetary committee chose unanimously at the meeting earlier this month to leave the repo rate did not change at a 4 percent low record for the 10th consecutive time. RBI chooses to support recovery in growth than against inflation.
However, there are some disagreements in the past few months on the RBI attitude and at the reverse repo level.
The external members of Jayanth Varma, a professor at the Indian Management Institute, Ahmedabad, did not support maintaining the accommodating attitude and the reverse repo level of 3.35 percent, according to the minutes of the February 8-10 MPC meeting released on February 24.
“I have been in the past, I said my booking about the width of abnormal corridors policy, but with all the money market levels that had moved close to the top end of the corridor, persistence with a low level of reverse repo has now become a rather harmless feticism, and therefore I don’t Will think about it, “Varma said.
However, Varma sticks to the weapon on the policy attitude, says changes to neutral from accommodating are “long maturity.”
‘Simple increase’
Maybe more revealing is a statement that while real interest rates need to remain low, they must be “rather positive” in FY23. And although this is largely achieved through a decrease in inflation, “there will be a need for a simple increase in nominal interest rates.”
While only Varma know what “simple” interest rate increases will occur, economists from outside the RBI have predicted a rise in interest rates for some time now, quantum which of course cannot be called ‘simple.’
Nomura, for example, said the inflation of the RBI FY23 was underestimating gross (RBI: 4.5 percent, nomura: 5.8 percent) and that the repo level will be carried out with 100 basis points in 12 months starting April.
Varma is not alone in implies that the repo level may soon increase.
Ashima Goyal, another external member of the Professor MPC and Emeritus at the Indira Gandhi Development Research Institute in Mumbai, was recorded in these minutes by saying that the market has been at a price in “steep policy levels.”
According to Goyal, this seems too much about the increase in US interest rates and government loan requirements. Liquidity adjustments have been made, together with the decline in inflation expected, implied “a sharp increase in the Indian policy level it is not possible,” he said.
Again, just faltering knows what is in the policy level in his mind. The mention of the increase itself is worth noting, even though the increase may not be as much as the market expected.
RBI executive director Mridul Sagar, maybe, rather lag. Noting that the global interest rate cycle “clearly changed,” Saidar warned that the emerging market economy like India must “support more stringent financial conditions in front even if domestic monetary policy remains accommodative.”
Sagar has spoken in the past needs to increase the repo level. In December 2021, he had said that monetary policy could act to influence inflational fire if there was certainty about the revival of extensive and durable growth.
The overall tone of the minutes of the February meeting was dovish, partly by the warning needed by the members of the committee mentioned above and a terrible warning by others (RBI Deputy Governor Michael Patra: “So the central bank has a choice: receiving higher inflation for some time or be prepared to be responsible for destroying requests “).
Reading too much to minutes is a risk. However, certain members seem to warm up with the idea that the lift-off policy level is not far away. Of course, do they have enough sound to shift the committee’s decision, when the time comes, is another matter.