New Delhi: Members of the RBI Monetary Policy Committee (MPC) highlighted concerns of spillovers from global inflation emanating from ongoing geopolitical conflicts and supply-side disruptions, besides acknowledging the need for reasonable policy actions to tame inflation, said brokerage house Kotak Securities in a report.
The minutes reinforced the necessity to frontload withdrawal of policy accommodation amid the increasing risk of inflation expectations getting unanchored.
“While in all likelihood the April inflation reading of 7.79 per cent may have been the peak, the descent is expected to be very slow with all prints remaining above 6 per cent at least for the rest of CY2022,” the report said.
The persistence of elevated commodity prices amid supply-chain strains and geopolitical tensions is gradually making inflation more generalised and the risks have been adequately acknowledged in the MPC minutes of May meeting.
Even as the brokerage retains the base case repo rate hike of 40 basis points along with a 50 basis points hike in Cash Reserve Ratio (CRR) in the upcoming June policy, however, it cannot rule out an outside chance of 50 basis points hike given the need towards the conventional moves of multiples of 25 basis points.
In minutes of the recent policy meeting, MPC members highlighted the persistence of elevated inflation emanating from supply disruptions caused by the Russia-Ukraine war and Covid lockdowns in China as key risks.
They also acknowledged that though inflation was mainly supply-led, monetary policy action was necessary to avoid de-anchoring inflation expectations.
RBI Governor Shaktikanta Das noted that the worsening inflation outlook “warrants timely action to forestall second-round effects which could lead to un-anchoring of inflation expectations”.
However, the MPC members expressed a sense of ease compared to earlier policies from the steadily improving growth scenario in the economy.
Das highlighted that the rebound in domestic activity was getting gradually generalised. Additionally, he also noted that monetary policy actions aimed at lowering inflation and anchoring inflation expectations should help strengthen medium-term growth, the brokerage said quoting the minutes documents.