The Reserve Bank of India just wrapped its latest meeting without touching rates. But the real action happened in the minutes.
All six members of the monetary policy committee agreed to leave the benchmark rate at 5.25% and maintain a neutral stance for the fourth straight meeting. That sounds calm on the surface. Underneath, at least one official is thinking about raising rates, not cutting them.
The minutes from the Aug. 3-5 meeting, which came out on Aug. 19, show a committee that wants proof before it moves. Nearly all members, including Governor Sanjay Malhotra, said they needed more clarity on inflation before taking action.
That caution is not hard to understand. Inflation is expected to reach 5.9% in the quarter from October through December. That sits right at the upper edge of the RBI's tolerance band of 2%-6%. It is not out of bounds, but it is not comfortable either.
Deputy Governor Poonam Gupta was the most direct about it. Her position, in her own words: "The scope for any further easing does not seem to exist at the current juncture." She added that "a case for a hike may emerge during the course of the year."
The rest of the committee was not eager to tighten policy soon. The other five panelists did not come around to her sense of urgency about raising rates.
The central bank has held rates steady since the start of the Middle East conflict. During that same stretch, Japan, Australia, and Indonesia all raised their rates. So why is India different?
Two reasons stand out. First, officials in India view the current conflict as a supply shock that will pass. Second, inflation is still inside the 2%-6% range, even if it is drifting toward the top. And India remains among the fastest-growing major economies, giving the central bank room to wait.
The numbers support that patience. The RBI this month lifted its growth projection for the financial year ending in March to 6.7% and lowered its inflation outlook to 5%. State Bank of India expects figures scheduled for release later this month to show the economy expanded by close to 8% in the April-June quarter.
Governor Malhotra did leave the door open for action if the situation changes. Malhotra said the RBI could tighten if price increases in food, fuel, and other inputs spread through the economy.
Analysts have noticed the shift in tone. Goldman Sachs Group Inc. has shifted its expected timing from October to the end of the year, or the beginning of next year. Most other economists have pushed out their rate-hike forecasts too.