The minutes of the Reserve Bank of India’s policy session – ended October 5, suggest that the tightening cycle has a little bit further to run, as policymakers placed great importance on defending the central bank’s credibility and the core inflation remains elevated, Capital Economics economist Shilan Shah said on Monday.
The RBI held the repo and the reverse repo unchanged at 6.50 percent and 6.25 percent respectively in a 5-1 vote. This followed two consecutive meetings in which rates were hiked by a cumulative 50 basis points.
The minutes, released on Friday, suggest that concerns about underlying price pressures continue to linger, though inflation eased below the target in the past few months, Shah said.
Several policymakers were concerned about the jump in household expectations and the fiscal slippages at the center and state government levels having an impact on the inflation outlook, the economist noted.
“Hanging over all of this, there is still plenty of emphasis on ensuring that the MPC doesn’t drop behind the curve and lose credibility as a result,” Shah said.
“For what it’s worth, we think that the swiftness with which the RBI has already responded to the recent rise in inflation will help to anchor inflation expectations and prevent the need for aggressive policy changes in the future,” he added.
Capital Economics expects another 25 basis points increase in the repo rate to 6.75 percent in this cycle.