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NEW DELHI: The Reserve Bank of India’s newly constituted six-member Monetary Policy Committee concludes its three-day brainstorming on the state of the country’s economy today. While the consensus is that the MPC will hold key interest rates steady, there’s a minority voice that’s still hoping for a rate cut, even if it’s a 15 basis point shave, for the sake of intent and optics. This section believes that growth, and not inflation, should be the priority of the central bank for the time being.

The consumer price inflation (CPI) for the month of August stood at 6.69%, above the top end of the RBI’s medium-term target range of 2%-6% for the fifth consecutive month amid supply disruptions. Notwithstanding this data, some believe that at a time when growth has collapsed and various projections, including Fitch and Goldman Sachs’, peg the economy to contract by double digits, the economic mavens at the MPC should train their eyes on growth.

“We have had double digit inflation. Inflation is a fuzzy concept. CPI has a heavy food basket. Prices of food necessary for survival will not shoot up. The government’s food subsidy takes care of the needy. Where the demography is young, priority has to be employment and growth and not inflation," Charan Singh, non-executive chairman of Punjab and Sind Bank and former RBI chair of economics at IIM Bangalore, told Mint.

Singh wants at least three things to come out of the MPC clearly. One is a rate cut. Secondly, he wants the MPC statement to say that it will keep interest rates low at least for a year, much like what the US Federal Reserve has done in saying that rates will stay near zero for at least three years.

“Thirdly, I would like inflation targeting to be given a pause. Employment and growth should be of paramount importance," Singh said.

A clear communication on inflation trajectory can very well be expected to come through if one goes by the 23 September statement of Ashima Goyal, the newly appointed member of the MPC. Putting her views across on the day at a ‘shadow MPC meet’ of EGROW Foundation, a Delhi-based economic think-tank, Goyal had called for clarity in RBI’s inflation outlook. This was before she was nominated to the MPC.

“It is important to continue anchoring inflation expectations, so a pause is called for at present. But clear communication is required that the inflation spike is temporary, and will be looked through, that the RBI will remain accommodative— as long as it takes for growth to revert to potential—which is likely to be longer since the virus has turned out to be persistent. The US Fed has given such an assurance for 3 years. Although details may be difficult to give now because of extreme uncertainty if the direction is made clear, industry and markets will respond now," she noted.

She had favoured a ‘pause’ in interest rates at the 23 September meet. A Bloomberg Poll of 32 economists showed that 30 expected a status quo while two expected a 15 and a 50 basis points cut each. Six respondents said MPC will cut rates by 25-50 basis points before the end of March as growth concerns will likely persist.

Arvind Virmani, India’s former chief economic advisor at the time of the 2008 global financial crisis, expects the MPC to “innovate", again, like Charan Singh, pointing out at the US Fed.

“Given the once in a century shock, comparable to, but structurally different from, the Great depression, many central banks, like the US Federal Reserve, have innovated. There is a need for the MPC to do the same," Virmani said at EGROW’s 23 September shadow MPC meet.

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