MPC minutes: Das urges focus on restoring inflation-growth balance

Policy priority should be on restoring the inflation-growth balance, said Shaktikanta Das, former Reserve Bank governor, while voting for a status quo on the short-term lending rate earlier this month.

Das, and three other members of the rate-setting panel -- Monetary Policy Committee -- voted in favour of keeping the repo rate at 6.25 per cent, while the other two members favoured reduction in the rate.

In its December bi-monthly monetary policy, the Reserve Bank of India (RBI) kept repo rate unchanged but cut the cash reserve ratio that banks are required to park with the central bank, as it did a balancing act between inflation management and supporting economic growth.

With India's GDP seeing a sharper-than-anticipated dip in the July-September period to 5.4 per cent -- its slowest pace in seven quarters -- inflation on the uptick and rupee under pressure, the RBI had few choices to make.

"The policy priority at this critical juncture has to be on restoring the inflation growth balance. The fundamental requirement now is to bring down inflation and align it with the target," Das said as per the minutes of the December 4-6 MPC meeting released by the RBI on Friday.

It was the last meeting of the MPC under Das, who demitted office earlier this month after completing an extended six-year tenure.

Sanjay Malhotra has been appointed the RBI Governor, who will chair his first MPC meeting in February.

According to the minutes, in the overall assessment of the outgoing governor, the gains achieved so far in the broad direction of disinflation needs to be preserved, while closely monitoring the evolving outlook of both inflation and growth.

Along with Das, Saugata Bhattacharya, Rajiv Ranjan (Executive Director, RBI) and Michael Debabrata Patra (Deputy Governor, RBI) voted for status quo on interest rate.

External members Nagesh Kumar and Ram Singh, were both in favour of a 25 basis point reduction in repo rate.

As per the minutes, Nagesh Kumar said he believes that a rate cut would help reviving economic growth without worsening the inflationary situation, which may soften with seasonal correction in prices.

Ram Singh said a rate cut will reduce costs of doing business and increase the opportunity cost of holding on to cash for firms and companies.

"Hopefully, this will boost companies' investment plans and improve the scope of employment-linked incentive schemes helping induce a virtual cycle of wage growth and demand. By tightening the labour market, it will also improve efficacy of the monetary policy," he added.

RBI Executive Director Ranjan said amidst difficult policy trade-offs, the cautious and calibrated approach has kept the economy in good stead.

"The need of the hour is to be watchful of the forthcoming data to ascertain the projected improvement in the balance between inflation and growth outlook.

"If food price pressures wane on projected lines, this would open up the policy space to normalise rates. Our neutral stance provides the flexibility to respond to the evolving situation," he said.

Patra said private investment will want to see a robust revival of domestic demand to draw in the slack that it is now experiencing.

The monetary policy stance, the Deputy Governor added, is open to support growth, but it must await the ebbing of inflation on a durable basis or else the uneven progress made so far in disinflation will get dissipated.

"Accordingly, I vote to maintain status quo on the policy rate and persevere with a neutral stance in this meeting," he said.

Saugata Bhattacharya (external member in MPC), who too voted for status quo on repo rate, said the prevailing economic conditions bring to mind a phrase a former RBI governor had invoked in a different context: "festina lente", Latin for "make haste slowly".

"This is now apposite for guiding policy decisions. I had earlier noted the risk of making a 'policy error' in my October '24 statement; if anything, this risk has now increased," he said.

The MPC consists of three RBI officials and three members appointed by the central government.

The next meeting of the rate-setting panel is scheduled during February 5-7, 2025.