Rajiv Ranjan, Executive Director, Reserve Bank of India, has termed the pause in the current tightening cycle as a ‘wait-and-watch’ pause, which is neither ‘premature’ nor ‘permanent’.

“Not ‘premature’ because we have already increased the policy rate by 250 basis points (bps) in about a year, with frontloaded rate action of about 190 bps during the first five months.

“Not ‘permanent’ as any durable decline in inflation towards the target of 4 per cent is still distant,” according to Rajan’s statement at the last monetary policy committee meeting, which was held between April 3-6.

Hence, he voted to continue with the “withdrawal of accommodation” stance.

Also read: Why MPC chose to hold rates

All six members of the MPC unanimously voted to keep the policy repo rate at 6.50 per cent.

Five out of six MPC members voted for the resolution to “remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth” .

“The inherent strength and resilience of the Indian economy, with inflation expected to moderate going forward, inspires confidence in our actions,” the RBI ED said.

He observed that during the last one year of monetary policy normalisation, the operating target of monetary policy rose by around 320 basis points, the effects of which are yet to be fully transmitted to domestic macroeconomic aggregates.

Also read: Editorial A pragmatic pause on rate hikes

“In the backdrop of the increasing depth and liquidity in financial markets, the long and variable lags of monetary policy may have shortened in recent years, supported by complementary tools of better communication, forward guidance and balance sheet policies.

“The shift to the external benchmark lending rate (EBLR) is an additional factor that has hastened the speed of transmission. Under these conditions, monetary policy tightening needs to be calibrated judiciously,” Ranjan said.

Real policy rates whether ex ante (before the event), or ex post (after the event), whether based on headline or core inflation, are now positive and expected to increase further given our projected inflation path, he added.

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