India's interest rate setting panel expressed concerns over a slowing economy, according to minutes of its latest monetary policy meeting released on Thursday, even as a few said they feared a bounce-back in inflation.
Most of the six-member Monetary Policy Committee (MPC) agreed on the need to lower interest rates and boost growth as inflation stayed muted, the minutes showed.
The MPC lowered the repo rate by 25 basis points to 6.00% two weeks ago in a 4-2 vote, the second in a row since February under new Reserve Bank of India (RBI) Governor Shaktikanta Das, who was appointed after the exit of his predecessor Urjit Patel in December.
"With the inflation outlook looking benign and headline inflation expected to remain below target in the current year, it becomes necessary to address the challenges to sustained growth of the Indian economy," Das wrote in the minutes, released by the central bank.
A minority of MPC members warned that a bad monsoon could push up food prices and drive up inflation above the RBI's 4% target.
India's March consumer inflation was an annual 2.86%.
While the state-run India Meteorological Department predicts average monsoon rains this year that should support agricultural production, Skymet, India's only private weather forecasting agency, said this month rainfall could be below normal..
"Soft food inflation may not persist for long," warned RBI deputy governor and MPC member Viral Acharya who voted against a rate cut, adding that it could steer "headline inflation away from the target rate of 4 percent".
Monsoons are crucial for India's food prices and economic growth with half of the country's farmland lacking irrigation. Irregular rains could push up food prices that have been falling for four months and further slow down an economic recovery if the rural economy suffers.
"It wouldn't hurt to wait for a couple of months to watch the momentum on food inflation and other variables before taking a call on further rate cuts," said another MPC member, Chetan Ghate, who wanted the repo rate to remain unchanged.
India grew at 6.6% in the December quarter, its slowest in five quarters on weak consumer demand and muted private investment. The slowdown has continued amid weak auto sales, tighter financing conditions and slow growth in jobs.
One MPC member, Ravindra Dholakia, known for his dovish stance and pro-growth bias, argued his case for a cut with a cricket analogy.
"When the pitch is favourable and no possibility of bouncers or googlies coming in, a well-set batsman has to score and not miss the opportunity to build the total by defending unnecessarily," Dholakia said.