Urjit Patel’s last monetary policy decision: Here’s what really happened at the meeting

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Updated: December 19, 2018 6:59:16 PM

Urjit Patel's last sentence opened doors for the possibility of a rate cut if inflation continued to be lower than the RBI mandated target of 4%.

Urjit Patel's last sentence opened doors for the possibility of a rate cut if inflation continued to be lower than the RBI mandated target of 4%.Urjit Patel’s last sentence opened doors for the possibility of a rate cut if inflation continued to be lower than the RBI mandated target of 4%. (Image: PTI)

At the last monetary policy review meeting chaired by former governor Urjit Patel, the six-member committee decided to maintain the status quo: 6.5% repo rate and calibrated tightening stance. The minutes of the meeting, released by the Reserve Bank of India (RBI) on Wednesday, give an insight into what transpired at the meeting.

Urjit Patel’s last sentence opened doors for the possibility of a rate cut if inflation continued to be lower than the RBI mandated target of 4%. “Should upside risks… not materialise on a durable basis in the coming months, there is a possibility of space opening up for policy action in due course,” the former governor said.

He, however, warned that although the inflation trajectory has been revised downwards, several uncertainties persist, especially about the medium-term outlook of food inflation and oil prices.

“Incoming data should help clear the haziness and enable better assessment of the inflation outlook, especially regarding the permanence of the current softness in inflation prints. Hence, I vote for keeping the policy repo rate unchanged and retaining the stance of monetary policy as ‘calibrated tightening,'” Urjit Patel said.

At the policy review,  the decision to keep the policy rate unchanged was unanimous but Ravindra H Dholakia, who is popular as the dove of the RBI MPC, voted to change the stance to neutral. The RBI releases the minutes of the meeting after two weeks of the policy decision.

“Drastic and sudden changes in the external economic environment have taken place after the last meeting of MPC in October 2018. Should these changes evoke a response through an appropriate policy action? – yes, if they are not purely temporary and have a reasonably long-term impact on the economy,” Ravindra Dholakia said.

RBI’s own downward revision of the forecast of inflation 12 months ahead to a substantial extent in response to those developments, is a clear indication of their long-term impact on the economy,” he added.

Nearly a week after chairing the meeting Urjit Patel stepped down from the position of RBI’s 24th governor — citing personal reasons — amid rift with the government over Prompt Corrective Action, liquidity issues in Non-Banking Finance Companies (NBFCs) and the central bank’s capital reserves. Last week, the Narendra Modi government appointed former bureaucrat Shaktikanta Das as the 25th governor of the RBI, who will chair the next MPC meeting scheduled in February.

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