Four Members Warn of Broadening Price Pressures

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has expressed differing views on whether inflation is spreading across the economy, raising questions about the future direction of monetary policy.

At its October 5–7 meeting, the six-member committee unanimously increased the repo rate by 25 basis points to 5.5%. Four members also supported changing the policy stance from ‘neutral’ to ‘calibrated tightening’.

According to the meeting minutes released on October 21, four members expressed concern that rising prices were extending beyond food, fuel and commodities to other goods and services. These included external members Saugata Bhattacharya and Ram Singh, RBI Governor Sanjay Malhotra and Executive Director Indranil Bhattacharyya.

Bhattacharya warned that price pressures were becoming entrenched, while Singh observed that inflation had spread beyond the direct impact of fuel and commodity prices following the West Asia conflict. Governor Malhotra also pointed to increasing signs of broader inflationary pressures.

However, external member Nagesh Kumar and Deputy Governor Poonam Gupta disagreed that inflation had become widespread or firmly entrenched. They attributed much of the increase to external supply-side shocks, although both supported the October rate hike.

Inflation and Rupee Concerns Complicate Policy Outlook

India’s Consumer Price Index (CPI) inflation rose to 5.54% in September from 4.83% in August, remaining above the RBI’s medium-term target of 4%. Inflation is expected to rise further, potentially crossing 6% in October.

Widespread inflation is particularly concerning because sustained price increases across several sectors can make it harder for the RBI to restore price stability.

The divided assessment comes amid expectations of further interest-rate increases. Financial markets have also signalled concerns about borrowing costs. The RBI recently rejected all bids in a Treasury bill auction for the first time in the current financial year, indicating a mismatch between the returns demanded by investors and the rates offered.

The rupee’s weakness has added another challenge. Although currency concerns received limited attention in the MPC minutes, Governor Malhotra subsequently said the RBI would take necessary steps to maintain an orderly foreign exchange market.

The differences within the committee highlight the challenge of balancing inflation control, currency stability and economic growth. Markets will closely monitor upcoming data and the RBI’s December policy decision for clearer signals about future interest rates.