Jayanth Varma
Jayanath R Varma, a member of the monetary policy committee (MPC) didn't understand the logic of majority members voting for a 40 basis point (bps) rate hike, instead of a 50 bps but chose not to dissent on the quantum of the rate hike, the minutes of the policy meeting released on 18 May showed.
"The majority of the MPC is in favour of 40 basis points for reasons which are not very clear to me," Varma commented in the MPC minutes.
"Whatever symbolic or psychological benefit there may be from keeping the hike below 50 basis points is outweighed by the simplicity and clarity of moving in round multiples of 25 basis points," Varma said.
Also reducing the hike by 10 basis points now would require an extra 10 basis point hike at some point (and perhaps sooner rather than later), Varma said.
However, he chose not to dissent on the quantum of the rate hike as the optimal rate hike is not something that can be calculated with mathematical precision, said Varma in the minutes. The MPC hiked the repo rate by 40 bps to 4.4 percent and the cash reserve ratio by 50 bps acting against high inflation on May 4.
Varma, however, noted that 40 basis points is not materially different from 50 basis points.
“I am thankful to the majority for not making my decision more difficult by choosing a 37.5 basis point hike (exactly mid-way between 25 and 50),” Varma said.
As far as the decision of the MPC to continue with the accommodative stance is concerned, Varma said it would not be wise for the MPC to persist with language that is pedantically correct but falls short in communicative efficacy.
“But such rephrasing is a matter for a future meeting,” Varma said.
Varma is the lone member in the MPC panel who has been advocating against the continuation of the accommodative stance. Also, Varma has been highlighting that ability of the monetary policy to tackle supply-driven inflation is limited.
The majority of the MPC members highlighted the concerns of a sharply rising inflation trajectory in the latest round of monetary policy meeting, according to the minutes of the panel’s latest off-cycle meeting released on May 18.
The retail inflation surged to a eight year high in April to 7.70 per cent--the highest since May 2014.
At 7.79 percent, the Consumer Price Index (CPI) inflation print for April is 84 basis points higher than the March number of 6.95 percent, data released on May 12 by the Ministry of Statistics and Programme Implementation showed.Not clear why MPC chose 40 bps hike, thankful they didn't go for 37.5 bps, says Jayanth Varma - Moneycontrol
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