Reserve Bank of India (RBI) Governor Shaktikanta Das highlighted the need to address growth challenges as the inflation outlook remained benign, at the meeting of the monetary policy committee earlier this month.
The minutes of the MPC meeting were released on Tuesday. Four out of six MPC members had voted for a reduction in interest rate from 6.25% to 6% during the first bimonthly policy review of 2019-20.
In the previous policy review in February too, the RBI had cut the interest rate by 25 basis points (bps).
“With the inflation outlook looking benign and headline inflation expected to remain below target in the current year, it becomes necessary to address the challenges to sustained growth of the Indian economy,” Mr. Das said, explaining why he voted for a rate reduction.
The RBI Governor also flagged the idea of departing from the conventional rate revision in multiples of 25 bps, during the MPC meeting, an issue on which he elaborated in a speech on the sidelines of the Fund-Bank Spring Meetings in Washington DC last week.
“I would like to state here that there is a need to consider interest rate adjustments, not necessarily in the conventional way of 25 bps or multiples thereof,” he had said during the MPC deliberations.
‘Stubborn core inflation’
Deputy Governor Viral Acharya, who is also a member of the MPC, voted for status quo for the second consecutive occasion, and highlighted the risks of stubborn core inflation.
“Inflation excluding food and fuel remains uncomfortably close to 5.5%, i.e., at elevated levels through most of the past 12 months,” Dr. Acharya said.
Observing that February had already shown some seasonal uptick in prices of several food items, Dr. Acharya argued that soft food inflation may not persist for long — a scenario in which the elevated level of inflation, excluding food and fuel, would steer the headline inflation away from the target rate of 4%.
“This can risk hardening of inflation expectations of households,” he added.