RBI MPC minutes: Policy panel stays cautious on inflation, holds rates

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) opted for a 'wait and watch' approach in its June 5 meeting, keeping the repo rate unchanged at 5.25% and maintaining a 'neutral' stance, according to the minutes released on Tuesday.

The panel cited concerns over inflation generalising, particularly due to the West Asia conflict and its impact on commodity prices. Governor Sanjay Malhotra noted that the central bank must remain vigilant about the inflation trajectory, adding that recent revisions in retail prices of petrol and diesel could push fuel inflation higher in the coming months.

While the near-term outlook for food prices remains favourable due to a good rabi crop and adequate stocks, the MPC flagged risks from a below-normal monsoon predicted by the India Meteorological Department (IMD) and likely El Niño conditions.

Defending the economy's resilience, Governor Malhotra said, 'Our economic situation is quite strong and healthy vis-à-vis many of our peers. We are in a much better position today not only in terms of the current shock but also with respect to all earlier shocks. We are one of the fastest growing major economies and our inflation has been benign in the past year.'

MPC Member Indranil Bhattacharyya emphasised gradualism, stating that while demand-pull inflation may call for pre-emptive action, cost-push inflation induced by supply shocks warrants caution. 'I feel it is prudent to wait for greater clarity to emerge from the data before deciding on any policy action,' he said.

External member Saugata Bhattacharya noted that as of early June, he did not see material signals of economic overheating, making a status quo on rates appropriate with the lowest economic cost.

The MPC revised its growth projection downwards from 6.9% to 6.6% and raised its inflation forecast from 4.6% to 5.1%, citing risks from elevated oil prices, global trade uncertainty, adverse weather, and geopolitical tensions.