Reserve Bank of India governor Raghuram Rajan went with the majority to cut the policy rate by 25 basis points at the June review, minutes of the technical advisory committee’s meet showed.
“All seven (TAC) members have recommended a reduction in policy repo rate — four members advocated a cut by 25 basis points; two members suggested a 50-basis-points reduction and one member proposed a reduction by 75 basis points,” RBI said on Tuesday in its minutes of the meeting of the technical advisory committee (TAC).
Most of the members were of the view that notwithstanding risks to inflation from monsoon and oil prices, a sharp reduction in inflation warrants a reduction in policy rate when consumption and external demand were weak and investment was showing a potential to revive, it said.
Members also highlighted conditions for further monetary accommodation, including more transmission by banks, supply response from the government on food prices, and signs of US monetary policy normalising.
“Since the evidence on these is mixed, a wait-and-see approach was warranted. However, with low inflation readings and its likely impact on inflation expectations that are adaptive, there is some monetary space to support the growth process,” the minutes said.
Two members recommended a 50-bps rate cut while one suggested a deeper 75-bps cut. One member also recommended cut in statutory liquidity ratio (SLR) by 50 basis point or 0.5%, the central bank said.
These members pointed out to the fall in retail and wholesale inflation, improved monsoon prospects, stability in oil prices, weak economic data and the need to nudge the real effective exchange rate downwards.
Some members also noted that many central banks slashed rates, and policy rates in India are one of the highest in the world in comparison to its inflation.
“Continuing weak non-food bank credit growth might slow down the pace of the turnaround in GDP growth… Members felt that more monetary accommodation would support the growth process at this juncture,” said the RBI release.
External members of the committee included YH Malegam, Shankar Acharya, Arvind Virmani, Indira Rajaraman, Errol D’Souza, Ashima Goyal and Chetan Ghate. Consultation with external members of the TAC was held electronically between May 20 and 22, in the run-up to the Second Bi-monthly Monetary Policy Review, 2015-16 on June 2, the RBI said.