Mumbai : Reserve Bank of India (RBI) Governor Urjit Patel had argued for avoiding “premature policy action” and waiting for more inflation data at the meeting of the interest rate setting panel earlier this month.
RBI’s Monetary Policy Committee (MPC), which met on June 6-7, had kept the repo rate unchanged at 6.25 per cent, citing risks to inflation. As per minutes of the fifth MPC meeting, five of the six members had voted in favour of status quo on rates. It was for the first time that the decision of the MPC, constituted last September, was not unanimous. IIM-Ahmedabad faculty Ravindra Dholakia had advocated a 50 basis point cut in the repo rate, saying several noteworthy developments recently on prices and output fronts warrant a decisive policy action.
Patel, who heads the MPC, also underlined the need for resolution of stressed assets of banks and timely recapitalisation of public sector lenders.
“Considering the high uncertainty clouding the near-term inflation outlook, there is a need to avoid premature policy action at this stage. I, therefore, vote for holding the policy repo rate at the current level of 6.25 per cent and maintaining the neutral stance of monetary policy,” he said.
The Governor further said incoming data is expected to provide greater clarity on the durability of recent food and non-food disinflation.One more set of inflation data will be released by the government before next meeting of the MPC on August 1-2. data released after the RBI’s policy review showed that retail inflation hit a low of 2.18 per cent in May from 2.99 per cent in April. Wholesale price inflation too fell to 2.17 per cent in May from 3.85 per cent in April.
As per the minutes, Dholakia favoured a 50 bps cut in policy rate. “In my opinion, this is the most opportune time for the MPC to effect a major cut of 50 basis points in the policy rate to bring it down from 6.25 per cent to 5.75 per cent,” he opined. However, Patel was of the view that there is need to avoid “premature policy action”.
The Governor further said the quiescent investment cycle remains a key macroeconomic concern and it is, therefore, imperative to ensure resolution of stressed assets of banks and timely recapitalisation of PSBs.
