RBI MPC minutes: Spurring GDP growth now a priority amid low inflation outlook

The MPC delivered a surprise repo rate cut in a 4-2 split vote earlier this month while members unanimously agreed to move the policy stance to "neutral" from "calibrated tightening".

The MPC meeting was the first for RBI governor Shaktikanta Das after the abrupt exit by his predecessor, Urjit Patel. Patel was known for his hawkish stance on interest rates, but Das downplayed inflation concerns and hinted at more rate cuts.

"The overall food outlook remains benign and the headline inflation one-year ahead is projected to remain below the target level of 4%," Das said in the MPC minutes.

"The neutral stance will provide flexibility and room to address challenges to sustained growth of the Indian economy over the coming months, as long as the inflation outlook remains benign."

Softer interest rates will be good news for Prime Minister Narendra Modi's government which wants to boost lending and lift growth ahead of elections to be held by May.

Das, RBI executive director in charge of monetary policy department Michael Patra and external members Ravindra Dholakia and Pami Dua voted in favour of a 25 basis points rate cut while another external member, Chetan Ghate, and RBI deputy governor Viral Acharya called for a hold.

One basis point is one-hundredth of a percentage point.

Given that the last three interest rate moves out of five were split since the panel came into effect in October 2016, the probability of a divided MPC going ahead has gone up, analysts said.

India's January inflation fell to its lowest in 18 months at 2.19%, well below RBI's medium-term target of 4%, led by persistent food price deflation, but core inflation stayed sticky at around 5.4%. "Given the elevated level of inflation excluding food and fuel, our counterfactual exercises do not suggest any room for accommodation," Acharya wrote in the MPC minutes.

The central bank has lowered its inflation target for April-September to 3.2-3.4% from the 3.8-4.2% seen in December and trimmed the GDP growth forecast to 7.2-7.4% from its previous estimate of 7.5%.

The MPC also noted the global uncertainties over trade frictions, Brexit and oil prices could add to growth headwinds back home even as most central banks have moved firmly away from last year's tightening moves.

The US Federal Reserve on Wednesday affirmed it would be "patient" on further interest rate rises after four in 2018, further cooling off rate hike expectations.

Reuters's Swati Bhat, Euan Rocha, Abhirup Roy, Promit Mukherjee and Sudipto Ganguly contributed to this story.