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Disciplined Confidence: RBI Policy September 2022
Disciplined Confidence: RBI Policy September 2022

Mumbai, Oct 1 (TIWN): The policy was along expected lines in terms of action with the MPC delivering a 50 bps hike, taking the repo rate to 5.90 per cent. The recent dissent on stance continued from MPC member Prof Varma. However, there was a new development on one dissent on quantum of hike. Dr Goyal voted for 35 bps hike only.

Thus there is a clear recognition of our strengths and a sense of confidence in the face of global challenges. However, the resolute normalisation of policy nevertheless continues without taking the eye off the ball.

The clearest example of this, in our view, was in the clarification of stance given by the Governor today. As background, this has been a somewhat vexing issue. Within the MPC itself there is one argument on appropriate stance linked to the level of repo rate achieved and another around absorption of liquidity. The clarification from the Governor in some sense combined the two. When the stance of monetary policy was moved from neutral to accommodative in June 2019, the repo rate was at 5.75 per cent; lower than what it is after the policy decision today. However, inflation was sub 4 per cent on near projections and liquidity was mildly deficit. Today, near projections on inflation are still around 6 per cent and liquidity (when adjusted for very high government balances part of which will be spent going ahead) is still in surplus. Hence both on ‘real’ policy rate in the near term as well as on current liquidity situation monetary policy is deemed to be more accommodative today. This definition, alongside a refusal to get drawn into a debate on terminal policy rates, keeps monetary policy flexibility alive in the face of a very hostile global situation.

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