MPC unanimously agreed on repo rate, but not on accommodative stance: Minutes

According to the minutes of the MPC meet which took place from February 8 to 10, all six members of the MPC unanimously voted to retain the RBI's repo rate, or short-term lending rate, for commercial banks, at 4 per cent. Likewise, the reverse repo rate was kept unchanged at 3.35 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.

To support the economic recovery, the six-member Monetary Policy Committee of the Reserve Bank of India had unanimously voted to retain the repo rate at its last meeting.

However, not all members were in agreement for maintaining the accommodative stance.

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According to the minutes of the MPC meet which took place from February 8 to 10, all six members of the MPC unanimously voted to retain the RBI's repo rate, or short-term lending rate, for commercial banks, at 4 per cent.

Likewise, the reverse repo rate was kept unchanged at 3.35 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.

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On the subject of retaining the accomodative stance, all members except Prof Jayanth R. Varma voted to maintain it.

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The Reserve Bank's MPC minutes, released on Thursday, quoted RBI Governor Shaktikanta Das as saying: "Amidst growing divergence in policy responses on the global front, our monetary policy should remain attuned to the evolving domestic inflation and growth dynamics. Despite recovery in 2021-22, real GDP is only marginally higher than the pre-pandemic level with private consumption still trailing its 2019-20 level."

"Inflation pressures in India continue to emanate largely from supply side factors, and the recent print also reflects adverse base effects. The expected moderation in inflation trajectory over the next financial year provides room for monetary policy to remain accommodative."

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Besides, Das said that economic recovery from the pandemic remains incomplete and uneven and continued support from various policies remains crucial for a sustained recovery.

RBI Deputy Governor Michael Debabrata Patra said: "To sum up, economic activity in India appears to have resiliently withstood the third wave, but messages from incoming high frequency indicators are mixed."

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"It is prudent to assume that the recovery may have lost some momentum during Q4: 2021-22 and Q1: 2022-23. Inflation appears to be approaching an inflection point after which it is projected on a downward path through all of 2022-23."

On his part, Prof Varma said: "... I vote in favour of maintaining the policy rate at 4 per cent while voting against the policy stance on two counts. First, a switch to neutral stance is now long overdue."

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"Second, the continued harping on combating the ill effect of the pandemic has become counter productive and deflects the focus of the MPC away from the core issue of addressing the recessionary trends that go back at least to 2019."

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In addition, Prof Varma said that in the past, he had expressed reservations about the abnormal width of the policy corridor, but with all money market rates having moved close to the upper end of the corridor, the persistence with a low reverse repo rate "has now become a somewhat harmless fetishism, and I will therefore not dwell on it".

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