MUMBAI: RBI governor Sanjay Malhotra in his maiden monetary policy committee (MPC) meeting had said that it was an ‘appropriate time’ to cut rates, given the macroeconomic outlook and expected inflation alignment with the target. Malhotra had argued that monetary easing, along with agricultural growth and budgetary measures, would stimulate household consumption, housing investment and capital expenditure, strengthening overall demand. These comments indicate the governor’s prefernce for supporting growth, against the backdrop of moderating price pressures.
The minutes of the first MPC meeting with two new RBI members reveal that there was an unanimous vote for a rate cut, amid fears of slowing growth. The RBI on Friday released minutes of the MPC meeting held on Feb 6. The meeting resulted in a 25 basis point cut in the repo rate – the first in five years. Slowing growth and consumption had triggered calls for a rate cut. Officials in the finance ministry also said that the budget, which unveiled a mega tax relief for the middle class and also stuck to fiscal consoldation, has given “comfort to the monetary authroity,” comments which were interpreted as a strong support for a rate cut.
While he voted for the cut, Malhotra also wanted monetary policy to retain its flexibility. “Uncertainties on global financial markets and trade policy front, coupled with continuing risk of adverse weather events, pose risks to the inflation and growth outlook. We need to be watchful of how these forces play out. Hence, I vote to continue with the neutral stance of monetary policy. This will provide the flexibility to respond to evolving macroeconomic environment,” said Malhotra.
“At the current juncture, with a further alignment of headline inflation towards the 4% target, there is greater space to address concerns regarding growth by way of reduction in the policy repo rate,” said deputy governor M Rajeshwar Rao in his first MPC meeting.
RBI member Rajiv Ranjan said “Having duly sequenced our stance and liquidity measures during the last two policies and given the outlook on inflation, time has come to accord higher weight to growth in our policy setting. Coupled with govt measures to boost consumption in budget, monetary policy easing will support higher aggregate demand.”
Nagesh Kumar, who had earlier voted for a 25 basis point rate cut, called for a half a percentage point reduction in the latest MPC meeting. “We could be more ambitious and target a 50 basis point cut. It would send a signal to markets and private investors within and outside the country that India is serious and would do whatever it takes to revive economic growth momentum.”