Premature pause in monetary policy action would be costly error: RBI Governor at MPC meeting

New Delhi [India], December 21 (ANI): Any premature pause in monetary policy action would be a "costly policy error", Reserve Bank of India Governor Shaktikanta Das said during the latest Monetary Policy Committee meeting held earlier this month.
In its fight against rising inflation, the central bank has already hiked the key policy rate by 225 basis points since May to 6.25 per cent to cool off domestic retail inflation that had stayed above the RBI's upper tolerance limit for over three quarters now.
Raising interest rates typically cool demand in the economy, thereby putting a brake on inflation.
The latest hike was on December 7, when the Monetary Policy Committee (MPC) of the RBI increased the policy repo rate by 35 basis points.
The committee also decided to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
" I am, therefore, of the view that a premature pause in monetary policy action would be a costly policy error at this juncture," RBI Governor had said, as per the minutes of the meeting released on Wednesday.
Meanwhile, India's retail inflation rate based on Consumer Price Index declined to 5.88 per cent in November from 6.77 per cent during the previous month, according to data released recently by the ministry of statistics. Retail inflation in India is now at an 11-month low and it declined below 6 per cent, which is in RBI's comfort zone.
"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," Das said, while voting for a 35 basis points hike in repo rate.
Prior to December's hike, the past three hikes were of 50 basis points magnitude.
The reduction in the degree of the rate hike, Das had said, "itself conveys the signal of an improvement in the inflation outlook."
"To conclude, let me add that in a tightening cycle, especially in a world of high uncertainty, giving out explicit forward guidance on the future path of monetary policy would be counterproductive," the minutes quoted Das as saying.
"This may result in the market and its participants overshooting the actual play out of real conditions. In such circumstances, it would be prudent to keep Arjuna's eye on the evolving inflation dynamics and be ready to act as may be necessary. Monetary policy has to be nimble to address any emerging risk to the price stability while keeping in mind the objective of growth," Das added. (ANI)