The following are the highlights from the minutes of the Apr 2-4 meeting of the Reserve Bank of India’s Monetary Policy Committee, released by the central bank today:
SHAKTIKANTA DAS
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* Need to mull rate moves other than 25 bps or multiples
* Appropriate to maintain neutral monetary policy stance
* Bank credit flows to MSMEs remain extremely weak
* High frequency indicators show more loss of growth pace
* Fisc situation at general govt level needs careful vigil
* Inflation has continued to surprise on the downside
* Since Feb policy, seen more weakening of growth impulses
VIRAL ACHARYA
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* Feb core inflation “uncomfortably close” to 5.5%
* Would’ve voted for rate cut Apr if MPC hadn’t cut in Feb
* Momentum of crude oil prices cannot be taken lightly
* Oil price pass-through will eventually hit retail prices
* Fiscal steps to tackle farm distress an upside risk to CPI
* MPC not reacting to high core CPI on low food inflation
* Saw some seasonal rise in many food items’ prices in Feb
* Soft food inflation may not persist for long
* This is a “particularly inopportune time” to cut repo rate
* Repo rate of 6.25% may be just “right” to meet 4% CPI aim
* Continuing oil price rise may need some tightening later
* May need some tightening later if vegetable prices rise
* Fiscal impulses would likely require some tightening later
* Only huge collapse in global growth justifies rate cut now
MICHAEL PATRA
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* Inflation projection path in Apr down 30-40 bps vs Feb
* Inflation likely to stay below aim over 12-mo horizon
* If CPI aim met durably, some space open for growth focus
* Maintain view that biggest risks to growth are global
* Some global risks to growth are already materialising
* Watchful on likely food price upturn ahead of monsoon
* Monetary policy orientation “overarchingly domestic”
* “Drivers of growth are fading”
* Capacity use in mfg above trend in absence of new invest
* If capex doesn’t pick up, tough to grow at current pace
* Must not waste policy “ammunition” amid GDP-CPI dilemma
CHETAN GHATE
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* Elevated core inflation continues to be a concern
* Extent of food price disinflation is falling
* RBI CPI forecast for Jan-Mar 2020 “on the lower side”
* See sub-7% GDP growth only in Oct-Mar
* Various RBI surveys don’t depict an economy in collapse
* Competitive populism may jeopardise durability of inflation
* Can create uncertainty with frequent rate, stance changes
PAMI DUA
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* Vote to cut rate on lower global growth, benign CPI outlook
RAVINDRA DHOLAKIA
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* Relation between output, unemployment gap crucial
* Core CPI likely to show sharp decline in coming mos
* Energy prices likely to be subdued for 10-12 mos
* “We need to give a sustained boost to the economy”
* Don’t see CPI breaching 4% aim in foreseeable future
* Cut in CPI forecast gives space to correct real rates
* Post Feb policy, had space for 40-50 bps rate cut
My Two cents
RBI is using all instrument at its disposal to not only ease the LIQUIDITY shortage in the banking system but preparing grounds for a larger rate cut in future. This is no different than what other central bankers are trying to do as fiscal side expansion is not readily available. Government will never take the blame for mismanaged finances and will always lean on central banks (whose independence is now getting questioned) https://fareedzakaria.com/columns/2019/4/18/populist-assault-on-central-banks-could-have-long-lasting-coststo jump start the economy. The recipient of central bank largesse have understood this game and instead of putting this money to use in the real economy, this excess liquidity flows into asset markets creating asset bubbles. Do some forex swaps to add INR liquidity and do some more in the form of Open Market Operations ( indirectly funding government deficit) in the face of rising crude oil and messy govt finances ……. honestly what can go wrong?