June 20, 2018 / 1:03 PM / 3 months ago

India rate panel strikes balanced tone, awaits clarity for further move - minutes

MUMBAI, June 20 (Reuters) - India’s monetary policy committee struck a balanced note on its rate stance going forward and cited rising inflation pressure due to high oil prices as the key reason for raising interest rates in the June meeting, according to minutes of the meeting released by the Reserve Bank of India on Wednesday.

The MPC members raised concerns over rising household inflationary expectations which along with robust growth momentum could add to price pressure going forward.

However, the six members who had unanimously voted for a rate hike at the June 6 meeting preferred to wait for more clarity on the inflationary impact of a government proposal to increase the minimum purchase price of foodgrains, along with the direction of oil prices. That prompted them to hold their stance at “neutral” instead of moving to “tight”.

“It will allow the MPC to determine in a flexible manner what further monetary policy response is warranted based on an ongoing assessment of the inflation situation, inflation expectations and growth prints in the coming months,” RBI Deputy Governor Viral Acharya wrote in the minutes, referring to the neutral stance.

India’s headline consumer inflation rose to a four-month high of 4.87 percent on-year in May, with core inflation that excludes food and fuel rising to around 6.20 percent reflecting strong demand pressure.

India posted its best growth in nearly two years at 7.7 percent in January-March quarter.

“The minutes are quite balanced and no one is giving any statement about future rate hikes,” said a senior treasury banker at a foreign bank.

“It is heartening to see that this time the minutes are similar to what they mentioned in the policy statement unlike last time,” the banker added.

Another MPC member, Ravindra Dholakia, who had opposed rate hikes, changed his view on rising inflation risks and a strong economic recovery and said “prudence lies in retaining the neutral policy stance, but increase the policy rate by 25 bps for now”.

Pointing to high oil prices, the RBI in June raised its inflation projection by 30 basis points to 4.7 percent by March 2019 compared to its April policy view. (Additional reporting by Swati Bhat Shetye, Devidutta Tripathy, Abhirup Roy, Sankalp Phartiyal, Promit Mukherjee Editing by Darren Schuettler)

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