RBI minutes: Gov Urjit Patel pushed 0.25% rate cut – 16 Aug 2017

  • RBI Governor Urjit Patel had opted for a moderate rate cut of 25 basis points arguing that low food prices were unusual and vulnerable to upward pressures, said minutes of the last Monetary Policy Committee (MPC) meet released on 16 Aug 17.
  • Patel had also opined that effective transmission of policy rate was key to non-inflationary growth and banks have still space to cut lending rates.
  • Four of the six members had recommended 0.25% cut in repo rate. While external member Ravindra H Dholakia (Professor, IIM, Ahmedabad) suggested 0.5% reduction, another member Michael Debabrata Patra (RBI Executive Director) was in favour of status quo.
  • He said an assessment of whether the recent deflation in food items is sustainable, despite a normal monsoon, would require more hard data going forward
  • Credit growth, Patel noted, has also been low partly because of risk aversion among banks on account of stressed assets position. Patel also stressed that resolution of stressed balance sheets of banks “will remain important” for reviving credit demand and the investment cycle.
  • RBI Deputy Governor and MPC member Viral V Acharya, who had also voted for 25 bps rate cut, expressed concern about the impact of farm loan waivers on inflation and growth, “due to induced departure from fiscal discipline”.
  • The minutes said MPC’s decision was consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for retail inflation of 4% within a band of +/- 2%, while supporting growth.

External Link : http://economictimes.indiatimes.com/markets/stocks/news/rbi-mpc-minutes-members-warn-inflation-could-accelerate/articleshow/60087507.cms

16-Aug-2017


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