RBI MPC minutes: Central Bank cut rates to fuel growth, correct ‘past inaction’

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Updated: Feb 22, 2019 2:52 PM

All the six members of the MPC agreed that the inflation in the near term will remain lower citing low prices of food, fuel, crude oil and house rent allowance.

The minutes of monetary policy committee released on Thursday marks a strong shift in Reserve Bank of India approach which is now proactive to give push to growth momentum in the economy, given the inflation will remain low in the near term.

“It will be right to consider a rate cut to correct the past inaction and provide impetus to growth without risking inflation beyond the 4 per cent target,” said Ravindra Dholakia, an external member of the monetary policy committee.

In earlier MPC meetings, barring Dholakia, no other member was in support of reducing policy rate even when inflation was well below the 4 per cent. However, in this meeting not only the committee changed its stance from calibrated tightening to neutral but also voted four against two for a 25 basis rate cut.

Pointing out that the real policy rate of 2.6 per cent in India, is one of the highest in the world, Dholakia said “There is, therefore, an immediate need to change the stance formally from calibrated tightening to neutral and cut the policy rate by 25 bps to begin with’’.

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Shaktikanta Das, the RBI governor emphasised the importance of private investment to give push to growth and employment in the economy. “ Growth impulses have weakened and there is a need to spur private investment and strengthen private consumption, especially in the wake of slowing global growth,” he said.

All the six members of the MPC agreed that the inflation in the near term will remain lower citing low prices of food, fuel, crude oil and house rent allowance. However, the committee takes note of some uncertainties in the long term and recommends a careful monitoring of such events. These include reversal in vegetable prices, rise in crude oil prices, volatile financial markets, abnormal monsoon and softening global commodity prices and slowdown in global demand due to rising trade war and geopolitical uncertainties.

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