Mumbai, August 16: The Reserve Bank of India’s monetary policy committee (MPC) members said easing consumer inflation had supported the need for a rate cut at its August meeting, but warned prices could start accelerating, minutes released Wednesday showed.
The comments reflected continued caution by most of the six-members of the committee, despite pressure by government officials and some economists to cut rates more aggressively after consumer inflation has remained below the RBI’s 4% target since October.
The RBI cut the main policy rate by 25 basis points to a more than 6-12 year low of 6.00% on Aug. 2, but kept its policy stance at neutral.
Four MPC members, including Governor Urjit Patel, voted for the move, while one voted for a 50 bps cut. The remaining member, RBI executive director Michael Patra, voted to hold rates at 6.25%.
The MPC members warned inflation could start accelerating later this year, while noting the focus should be on ensuring banks cut their lending rates further despite the RBI rate cut, none of the major lenders have lowered the cost of loans.
While the transmission has improved, there is still some space for banks to cut their lending rates, Patel wrote.
Resolution of stressed balance sheets of banks, therefore, will remain important for reviving credit demand and the investment cycle.
The majority of MPC members stuck to its warnings on inflation, the minutes showed, including by expressing worries about higher government spending.
However, Ravindra H Dholakia, a professor, voted for a 50 bps cut for a second meeting in a row, saying inflation would run below RBI expectations and noting the economy needed stimulus. Reuters