Most of the Reserve Bank of India’s monetary policy committee (MPC) members expect consumer price inflation to soften in the coming months, including core inflation, which has been sticky so far.
Hence, they opted for a reduction in repo rate in the monetary policy review announced earlier this month.
Four members of the MPC voted for a reduction in interest rate by 25 bps, while two opted for status quo. All members voted for a change in stance.
“Going forward, the outlook for food inflation is expected to be benign in the backdrop of excess domestic supply conditions in many food items. The lower prices in the international markets in food items also limit the avenues for exports to address the domestic surplus. This will be an important factor in keeping the overall inflation low,” said RBI Governor Shaktikanta Das, according to the minutes of the meeting released on Thursday.
Interestingly, one of the members, M.D. Patra, who is the executive director in-charge of monetary policy, and considered to be the most hawkish given his commentary in the past, voted for a rate cut.
“The critical judgment call is: will the momentum of food prices revert to the typical pattern from the unusually subdued pace observed in 2018-19 (April-August), or, will it take some time for large excess supplies in several food items to balance out before the usual momentum takes hold? My sense is the latter,” Mr. Patra said.
RBI Deputy Governor Viral Acharya, while voting for a status quo in rates, opted for a change in stance.
“In my view, a rate cut decision now would be heavily dependent on the assumption of sustained weak momentum of food prices all through the next 12 months, which, as I explained, must be viewed as coincident with significant upside risk from fiscal measures needed to address agrarian distress,” he said.
Mr. Acharya said it was better to wait till the next policy for a rate cut, since the uncertainties around some elements like health and education inflation, oil prices, etc., could be resolved by then.