Two of the three external members on the Reserve Bank Monetary Policy Committee (MPC) were not in favour of raising the key interest rate this month with one of them saying it was "not warranted" as inflationary expectations were diminishing and economic growth remained a concern.
External members Jayanth R. Varma and Ashima Goyal were not in favour of raising rates any further, according to the minutes of the February 6-8 MPC meeting released by the RBI on Wednesday.
The third external member Shashanka Bhide went along with the three Reserve Bank members and voted for raising the key policy rate for the sixth time in a row.
"In the second half of 2021-22, monetary policy was complacent about inflation, and we are paying the price for that in terms of unacceptably high inflation in 2022-23," Varma said as per the minutes.
In the second half of 2022-23, monetary policy has, in his view, become complacent about growth, and "I fervently hope that we do not pay the price for this in terms of unacceptably low growth in 2023-24".
"I believe that the 25 basis point rate hike approved by the majority of the MPC is not warranted in the current context of diminished inflationary expectations and heightened growth concerns," Varma said while voting against the MPC resolution to hike rate by 25 bps.
Varma is a professor at the Indian Institute of Management, Ahmedabad.
The six-member MPC comprises three RBI officials—Governor Shaktikanta Das, Deputy Governor Michael Debabrata Patra, and Executive Director Rajiv Ranjan; and three external members appointed by the central government.
Goyal, Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai voted for a pause in rate hike saying, "It is better to give time for possible softening of both inflation and growth and effects of past monetary tightening to play out".
The Reserve Bank which has been hiking the short-term lending rate since May last year has cumulatively raised the repo by 250 basis points. The repo now stands 6.5 per cent. The next MPC meeting is scheduled for April 3-6.