RBI Governor Urjit Patel flagged concerns over rising global oil prices and uncertainties on fiscal and external fronts in the meeting of Monetary Policy Committee (MPC) that left key policy rates unchanged earlier this month. Two other members in the panel, Deputy Governor Viral Acharya and Executive Director Michael Debabrata Patra, flagged the issue of inflation in petroleum products, according to the minutes of the MPC meeting held on December 5 and 6 released by the RBI today. In its December monetary policy review, the RBI had kept the interest rate unchanged at 6 per cent on concerns of a possible price rise but left the door ajar for a rate cut in future. The MPC decides on the key lending rate or repo rate. During the meeting, Patel remarked that the macroeconomic situation has remained broadly unchanged since the last MPC meeting in October 2017.
“However, the recent upturn in crude oil prices has emerged as a source of concern. Several uncertainties, especially on the fiscal and external fronts, persist,” the governor said while voting in the favour of status quo in the policy rate. The central bank, for the second time in a row, did not change the key interest rate (repo), which stands at 6 per cent. Acharya, who too voted in favour of status-quo in policy rate, said the global commodity cycle now seems to have turned with oil prices having also rebounded recently. “This has created significant input cost pressures in the economy, which at some stage may get passed on to retail prices,” he said.
In Patra’s opinion, price pressures are no more confined to vegetables alone, as in previous readings. They are getting diffused across petroleum products, services, and into underlying inflation. “The risks of inflation getting generalised appear to have increased to a point where they could potentially overwhelm the softening effects of winter arrivals of vegetables and fruits. Projections indicate that inflation prints are likely to stay above target from here on,” he said. Of the six members in the MPC, only Ravindra H Dholakia had voted for 0.25 per cent reduction in policy rates. The other two members of the MPC are Chetan Ghate and Pumi Dua.