Minutes of the last meeting of the Reserve Bank of India's monetary policy committee meeting reaffirmed the members' views to support domestic growth amid easing inflation.
"When consumer price inflation is decisively around its target rate of 4% and growth is still moderate and recovering, monetary policy needs to nurture domestic demand impulses to further increase the growth momentum", RBI Governor Sanjay Malhotra stated.
This is specially so amid an uncertain global environment, which has amplified downside risks to growth, he explained.
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The MPC cut the benchmark repo rate by 25 basis points earlier this month, while changing its neutral stance to accommodative. This was the second cut in a row, bringing the rate to 6%.
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The cut will bolster private consumption and support a revival in private corporate investment activity. Considering the evolving growth-inflation trajectories, monetary policy needs to be accommodative, according to Malhotra.
Deputy Governor Rajeshwar Rao also said while inflation outlook remains benign, GDP growth could face a downward pressure. "The recent waves of global uncertainty demand decisive policy support for growth."
Along with a rate cut, the MPC members also voted for a change in stance to accommodative from neutral.
Executive Director Rajiv Ranjan said that, keeping in mind the evolving growth-inflation outlook, the change of stance to accommodative was best at this juncture.
The current uncertain global environment has enhanced monetary policy and interest rate uncertainty globally, creating frictions between markets and central banks on the one hand and across different segments of the market, which is detrimental to monetary policy transmission, according to Ranjan.
In this context, a change in stance to accommodative helps provide a clear signal for future rate action, thereby facilitating monetary transmission, he explained.
The change in stance indicates that the direction of policy rates going forward would be either a status quo or further easing, the governor had clarified while announcing the MPC's decision to change stance.
"The change in stance will also be consistent with the large liquidity infusion that we have been doing in the recent past to aid policy transmission in this easing cycle," Ranjan said.
MPC member Saugata Bhattacharya also voted for a change in stance but added that it did not provide guidance of a pre-determined policy-easing path.
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