RBI MPC Minutes: Package Of Measures To Provide Some Certainty And Support Growth, Says Governor Malhotra
The governor said that it is important to keep in mind that it not only reflects the current macroeconomic conditions, but more importantly the outlook that goes into policy calculus.
The Monetary Policy Committee's jumbo rate cut of 50 basis points, RBI's change in stance and liquidity measures, will provide some certainty in the times of uncertainty and are expected to support growth, the Reserve Bank of India Governor Sanjay Malhotra said in the minutes of the policy meeting.
"On the whole, I believe that, given the current macroeconomic conditions and the outlook, monetary policy needs to support growth, while remaining consistent with the objective of price stability," he said.
On change in stance, the governor said that it is important to keep in mind that it not only reflects the current macroeconomic conditions, but more importantly the outlook that goes into policy calculus. The growth-inflation outlook is contingent on the spatial and temporal distribution of the southwest monsoon and at the same time considerable uncertainties persist in the global commodity, financial, and currency markets, he said.
Given these uncertainties, and after having reduced the policy rates by 100 bps in quick succession since February, in the prevailing growth-inflation scenario and the outlook, monetary policy will be left with very limited space to support growth.
Poonam Gupta, deputy governor, said that there is both a need as well as the room for monetary policy to provide support to the economy in order for it to attain and even surpass the past rates of growth. "The issue then arises, how much support can be provided, and at what pace," said Gupta. Overall, while a case can be made for two consecutive rate cuts of 25 bps each in this as well as the next policy cycle, there is also merit in front-loading these cuts, she said, explaining the reason for voting for a 50 bps cut. "This should help in fostering policy certainty and faster transmission than a staggered rate cut, and in more effectively countering the challenges emanating from the global economy," according to Gupta.
As monetary policy works with a lag, under the current circumstances, a 50-basis point cut is preferable to two 25 bps cuts for faster and greater transmission. Similar to the frontloaded rate hikes during the tightening cycle, frontloading rate cut could help in hastening transmission, said Executive Director Rajiv Ranjan.
