RBI MPC minutes — sounds like an extended pause and certainly no cut any time soon

The minutes of the Monetary Policy Committe's (MPC) April 6 meeting very much sound like an extended pause, despite some cautious, even hawkish words on inflation from some of the members like Michael Debabrata Patra, Jayanth R Varma, Rajiv Ranjan and even the governor Shaktikanta Das. None of the members sound like they want a hike in the coming months, but what is even more clear from the minutes is that a rate cut is absolutely not under consideration for the next many meetings.

Let’s start with the governor: His statements that "we do a tactical pause in this meeting of the MPC" may sound like a hike is possible in some future meeting. Yet it is very tough to believe he will hike in June when the last inflation reading (for April) could be sub-5%. Likewise, his much quoted statement "this is a pause, not a pivot", assures one that a cut is not on the cards, but this statement doesn't hint at a hike at all.

Michael Patra sounds hawkish when he says, "an ongoing assessment of the macroeconomic outlook should inform a preparedness to re-calibrate monetary policy towards a more restrictive stance with consistent actions" but he goes on to say this incremental restrictiveness will come only, "should risks to the inflation trajectory materialise and impede its alignment with the target". This has to be interpreted as, hike only if Consumer Price Index (CPI) is higher than RBI's trajectory.

Likewise, Rajiv Ranjan's statement that "this is a ‘wait and watch’ pause — it is neither a ‘premature’ pause nor a ‘permanent’ one" signals a likelihood of another hike. But his reference to softening inflation expectation, the "noise" in the February inflation, (where there was statistics surprise in the way cereals inflation was treated) and his optimism of the Rabi crop all show reasons why he may pause rather than hike.

The worst of the bark comes from Jayanth Varma, when he says: “It is clear that the war against inflation has not yet been won, and it would be premature to declare an end to this tightening cycle."

But this is the member who argued that 6% repo rate was high enough. It's tough to see him voting for a hike when inflation dips from 6%-plus to 5% or lower.  But this statement of Varma also shows he won't want a cut.

Ashima Goyal has been cautioning against an over-tightening for a couple of policies now and she was equally emphatic in the latest minutes. A further rise in real interest rates is best avoided at present since high real rates can trigger a non-linear switch to a low growth path," she argues. Such statements make Goyal the one least likely to go for a hike and may be the only one who will soon ask for a cut.

While commenting on RBI minutes, in an interview with CNBC-TV18, Abhilash Narayan, Senior Investment Strategist Group Wealth Management at Standard Chartered Bank said, “If you look at the minutes of the latest RBI meeting, it shows that the central bank remains concerned around inflation, but the global factors did impact the decision. So, the room remains open for RBI to hike but our base is that we have probably seen the peak in rates, so RBI could remain on pause for the next 3-6 months and we will need to see how the global backdrop evolves.”

Shashank Bhide is completely balanced. but sample his statement: "I believe that a pause in the policy rates is appropriate in this meeting, without any commitments on the subsequent actions except that aligning the inflation rate with the target will remain a policy priority." Clearly, he too sounds in no mood to cut.

Short point, the market shouldn't perceive anything different in the minutes from what it understood on April 6. The consensus post policy was that we are in for an extended pause. The minutes entirely reiterate that. Those expecting a cut later in the year may have to rework their expectation.