‘Priority should be restoring inflation-growth balance’

Mumbai: 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 at his last MPC meet 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 Reserve Bank of India 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.