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RBI Monetary Policy Panel Eyed Growth Concerns; Took Solace In Low Inflation

The minutes of the central bank's maiden monetary policy committee, released on Tuesday, showed that broad concerns over economic growth and relief from the pullback in inflation spurred the bank's recent rate cut decision

Photo Credit : PTI


The minutes of the central bank's maiden monetary policy committee (MPC) meeting, released on Tuesday (18 October), showed that broad concerns over economic growth and relief from the pullback in inflation spurred the bank's recent rate cut decision.

The minutes from the 2-day meeting on October 3-4, which saw all six MPC members voting for a quarter point rate cut to 6.25 per cent also revealed all members expecting inflation to be in line with Reserve Bank of India's March-end target of 5 per cent.

India's consumer price index inflation cooled to a 13-month low in September to 4.31 per cent, on the back of a moderation in food prices. The pullback in inflation has raised hopes of another rate cut in the next policy review in December.

All the members agreed on the need to boost growth at the current juncture with excess capacity in the economy and softening food prices unlikely to pose much risk to inflation.

The Reserve Bank of India's monetary policy committee has three members from the central bank and three external members appointed by the government with the governor having a tie-break vote. This was the first time the rate decision was taken by the MPC, where in the past the governor of the central bank was the sole arbiter.

However, the minutes made no mention of yearly inflation targets beyond March 2017 and laid down the broad 2-6 per cent band over the next five years. The minutes also did not give much insight on the MPC's monetary policy stance beyond March 2017.

The minutes reiterated the surprise change in RBI's stance from a neutral tone to a more accommodative one which had prompted analysts to bring forward their expectations of rate cuts with most estimating another quarter point cut by March-end, according to a Reuters poll.

While governor Urjit Patel was brief in his views and expressed confidence in achieving the RBI's March-end inflation target, Executive Director M D Patra highlighted the need to remain vigilant once inflation starts moving up in the January-March quarter.

The MPC has been given a mandate of "maintaining price stability," but it must do so "while keeping in mind the objective of growth," according to the amended RBI Act.

External member Chetan Ghate, a professor at the Indian Statistical Institute who has also worked closely with RBI in an advisory capacity expressed his concern on a persistent core inflation which has been hovering around 4.5 per cent for several months.

However, the other two external members - Pami Dua, a director at the Delhi School of Economics and Ravindra Dholakia, a professor at the Indian Institute of Management in Ahmedabad as well as RBI Deputy Governor in charge of monetary policy R Gandhi did not express much concern over inflation and gave greater focus to the need to boost growth.

Indian growth slowed to 7.3 per cent in April-June annually and slower than the central bank's projection of 7.6 per cent, though that still places India among the world's fastest-growing economies.