(Bloomberg) -- India’s rate panel went for a bigger hike earlier this month as resilient growth created space to act against inflationary pressures in Asia’s third-largest economy, minutes of the August monetary policy meeting released Friday showed.

All six members of the monetary policy committee led by Reserve Bank of India Governor Shaktikanta Das voted to increase the policy rate by half-point in their August 3-5 meetings. They saw inflation as having peaked in India, but cautioned of “considerable uncertainty” on the price front emanating largely from international geopolitics.

“Though inflation has moderated and plateaued since its recent peak of April 2022, it remains unacceptably and uncomfortably high,” said Governor Das. Significant uncertainties cloud the inflation outlook, he said, including the local currency’s loss against the dollar negating some of the recent gains from cooling commodity prices.

“Domestic growth, on the other hand, remains resilient and gives us the space to act,” Das said, as sustained high inflation could result in “unanchoring of inflation expectations and their second order effects.” Appropriate policy response was needed to “prevent upward drift in inflation from the target rate,” the RBI Governor said.

The RBI has increased the key rate by a total of 140 basis points since May to 5.40%. The minutes showed more rate hikes can be expected. The terminal repo rate “is almost certainly well above 5.40%,” said external member Jayanth Rama Varma, the minutes showed. 

While retail inflation softened for a third straight month in July, it stayed above the central bank’s 6% target ceiling, underscoring the need for policy makers to remain vigilant in containing price pressures. The central bank is focused on anchoring price gains back to the 2%-6% target range, the RBI said in a bulletin released on Aug. 18.

Varma argued that usage of language such as continued withdrawal of accommodation would indicate to the markets that the central bank wanted to take rates back to February 2019’s level of 6.5%, from where it initially started lowering the cost of borrowing for the economy. 

This would be “totally unwarranted” now as cooling commodity prices and slowing global growth could bring down the terminal rate well below 6.50% in the coming months, Varma said.

Here are some excerpts from the minutes of the August 3-5 MPC meetings:

  • Michael Patra, deputy governor in charge of monetary policy, said inflation seems to have peaked, but “it is still unconscionably high. Risks to the trajectory of inflation in the form of currency depreciation, seasonal pressures and the monsoon’s uneven progress could upend the moderation in momentum recently recorded.”
  • Rajiv Ranjan, an executive director at the RBI said there is “considerable uncertainty” with regard to inflation despite good monsoon rains and falling commodity prices, and the monetary policy should also be watchful about a possible rise in the wage-price spiral.
  • Ashima Goyal, an external member in the panel, said the real rate “is now near neutral,” but uncertainty and global risks to both growth and inflation remain high. “Attempting a soft landing for the economy is important, however,” she said.
  • The prevailing inflation pressures remain a concern and “continued monetary policy measures are needed to ensure that the inflation rate is aligned with the target rate,” said Shashanka Bhide, another external member in the panel.

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