The MPC's 'If it ain't broke, don't fix it' rate decision has its merits

Credit for India's happy mix of inflation and growth should be shared by RBI's rate-setting panel and the Union government

- MYTHILI BHUSNURMATH

The 46th and last meeting of the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) before the government’s Vote-on-Account on 1 February 2024 was a no-brainer. With growth doing better than all expectations, exceeding Governor Shaktikanta Das’s prophesy of a "surprise on the upside," and inflation seemingly under control for now, the MPC’s decision last Friday to maintain the status quo was not surprising.

The repo rate at which the central bank pumps liquidity into the system was retained at 6.5%. The focus on withdrawal of accommodation was also retained. ‘If it ain’t broke, don’t fix it’ seems to be the MPC’s underlying rationale, and, prima facie, has its merits.

Sure, some might cavil at RBI’s Panglossian view of the India growth story, the conviction that we can remain an oasis of growth and resilience at a time when, by Governor Das’s own admission, "normality still eludes the global economy." But the numbers, both on the growth front (7% in 2023-24) and inflation front (5.4% for the year), look reasonable enough.

The question is whether this happy mix of accelerating growth and slowing inflation can be sustained. Even ignoring Deputy Governor Michael Patra’s comment at Friday’s post-policy press conference that even 7% growth seems conservative, it does seem that we are enjoying the best of both worlds. Remember, it was only a year ago that the MPC had lowered its growth estimate and kept its inflation estimate unchanged.