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 Pause could prove costly, said Das; growth fragile, argued MPC’s Varma

The Reserve Bank of India could ill afford to opt for a “premature pause in monetary policy action” as it would prove costly at a time when there was ‘stickiness in core inflation’, Governor Shaktikanta Das stressed at the Monetary Policy Committee’s meeting earlier this month, the minutes show. On the other hand, fellow MPC member Jayanth Varma, who opposed raising interest rates yet again, asserted that “economic growth is now extremely fragile and definitely not robust enough to withstand excessive monetary tightening”.

“A premature pause in monetary policy action would be a costly policy error at this juncture,” Mr. Das had said in voting to raise the repo rate, the minutes released on Wednesday show. “Given the uncertain outlook, it may engender a situation where we may find ourselves striving to do a catch-up through stronger policy actions in the subsequent meetings to ward-off accentuated inflationary pressures,” he added.

Arguing that the balance of risks had shifted decisively away from inflation to growth both globally and domestically, Mr. Varma, however, said, “I believe that the 35 basis point rate hike… is not warranted in this context of reduced inflationary pressures and heightened growth concerns”.

Also, opposing the policy stance, he contended that given monetary policy impacts with a lag’, front loading monetary policy action posed an unwarranted risk to growth.

“It may take 3-4 quarters for the policy rate to be transmitted to the real economy,” Mr. Varma said, adding the MPC had raised the repo rate by 225 basis points in about eight months. “I believe that 6.25% itself very likely overshoots the repo rate needed to achieve price stability, and poses an unwarranted risk to economic growth,” he added.

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