The Reserve Bank of India Governor Shaktikanta Das
has said that the neutral stance of the central bank will provide flexibility and the room to address challenges to sustained growth of the Indian economy.
The RBI on Thursday released the minutes of the Monetary Policy Committee’s meeting held on February 6-7.
In his statement Das said that global growth was losing traction amid lingering trade tensions and uncertainty around Brexit.
“On the positive side, crude oil prices remained soft, though the benefit for net exports could be restricted due to slowing global demand. GDP growth for 2019-20 is projected at 7.4 per cent – in the range of 7.2-7.4 per cent in H1, and 7.5 per cent in Q3 – with risks evenly balanced,” he added.
The RBI Governor also believed that the outlook for food inflation was expected to be benign in the backdrop of excess domestic supply conditions in many food items.
The assessment by the central bank in the minutes showed that the economic activity has slowed down in some of the major emerging market economies (EMEs) with China growth decelerating in Q4CY2018.
In a major policy shift, the six-member MPC headed by Das on February 7 had lowered the repo rate by 25 basis points to 6.25 per cent in a 4-2 vote. RBI cut the rate for the first time in 17 months. The MPC also changed the policy stance to ‘neutral’ from ‘calibrated tightening’.
Viral V Acharya, Deputy Governor, said that the RBI’s quarterly inflation projections over the next 12-month horizon have been further revised downward and implied that headline inflation was steadily rising, but remained below the target rate of 4 per cent.
Michael Debabrata Patra, who voted for a 25 basis points reduction in the policy and a pre-emptive shift to a neutral stance, believed that inflation was troughing and its path over the 12-months ahead horizon was likely to be one that rises from current lows.
Chetan Ghate, who voted for a status quo, was worried that India was not consolidating fiscally although the extra budgetary spending on social welfare and stimulative programs may not materialise (unless states match it with their own initiatives). The quality of fiscal expenditures after the election may also improve.
“Maintaining status quo on the rates would be consistent with sustainable growth in the economy and achieving the inflation target over the medium-term,” said Ghate.