Ravindra H Dholakia, the sole dissenter on the Reserve Bank of India’s 6-member Monetary Policy Committee’s June review, urged a minimum interest rate cut of 50 basis points citing “the prevailing inflation and output conditions and prospects” that provided enough space to act decisively to back growth.
One of the three non-RBI members on the rate-setting panel, Mr. Dholakia said that failure to cut the policy rate would amount to “ignoring all costs associated with not supporting growth in terms of unemployment and poverty reduction,” the minutes of the June 6-7 meeting, released on Wednesday, showed. The central bank thus risked losing the opportunity provided by the favourable conditions of a “clear declining trend rather than stickiness” in core inflation, Mr. Dholakia argued.
“ In case, the conditions were really to turn unfavorable in future, the costs to the society would be severe if during the right time expansionary policies are not followed,” he said. “I, therefore, strongly plead to the MPC to effect a 50 basis points cut in the policy rate without losing any time.”
This was the first time since the MPC was constituted in October, that a member cast a dissenting vote.
RBI Governor Urjit Patel cited the “high uncertainty clouding the near-term inflation outlook” as justification to hold rates and maintain a neutral policy stance.
Stressing the importance of avoiding premature policy action, Mr. Patel said it would be prudent to wait for more data to provide “clarity on the durability of recent food and non-food disinflation.”
However, all the members who opted to wait and watch also adopted less hawkish language than in April.
With retail inflation having eased to 2.18% in May, the slowest since 2012, Consumer Price Index data for June would be closely watched for clues to the MPC’s stance in August.
