The Reserve Bank of India’s monetary policy committee (MPC) member Ravindra Dholakia, professor at the Indian Institute of Management, Ahmedabad was in favour of a 50-basis-point rate cut in the monetary policy review on June 7, minutes of the MPC meeting published on Wednesday showed. Apart from Dholakia, who voted for a rate cut, the remaining five members of the committee voted in favour of keeping the policy repo rate unchanged at 6.25%. The other members of the committee are: RBI governor Urjit Patel, RBI deputy governor in charge of monetary policy Viral Acharya, RBI executive director Michael Debabrata Patra and external members Chetan Ghate and Pami Dua.The central bank had consequently held its repo rate at 6.25% on June 7, but cut the statutory liquidity ratio by 50 basis points to 20%.
The RBI had also reduced its inflation projection to a range of 2-3.5% in the first half of the fiscal, from its earlier projection of an average of 4.5%.
For the second half of the fiscal, the RBI expects inflation to be in a range of 3.5-4.5%, lower than its previous projection of an average of 5%.
“There are several noteworthy developments recently on prices and output fronts that warrant a decisive policy action by the MPC. In my opinion, this is the most opportune time for the MPC to effect a major cut of 50 basis points in the policy rate to bring it down from 6.25 per cent to 5.75 per cent,” Dholakia had said, the minutes of the meeting show.
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The consumer price inflation dropped to a record low of 2.99% in April from a nearly five-month high of 3.89% in March, on a lower base effect and lower food prices, according to government data. The CPI inflation further fell to a new record low of 2.18% in May, data published by the government on June 12 showed. Dholakia had said the key point is that the expected headline consumer price index inflation over the next 12 months is expected to ease by at least 50 basis points compared to the April meeting of the MPC, adding that prudence lies in creating space when conditions are favourable and risks are not high than waiting and losing the opportunity. Arguing in favour of keeping the repo rate unchanged, Michael Patra had said the focus has to be on steering the trajectory of inflation towards its target over the medium-term and dealing with the risks around it, not on conducting monetary policy by looking at the rear-view mirror (the most recent inflation prints) or deviations of recent outcomes from projections (‘forecast errors’) that cannot be presumed to be durable.
He had said that divergent messages emanate from the limited data points available, and that without more clarity, it is possible to make policy errors that can be large and costly in the medium-term. “Considering the high uncertainty clouding the near-term inflation outlook, there is a need to avoid premature policy action at this stage. I, therefore, vote for holding the policy repo rate at the current level of 6.25 per cent and maintaining the neutral stance of monetary policy,” governor Urjit Patel had said.