Opinion
Mint Quick Edit | Inflation: Why RBI’s dissent vote was heavily outweighed
Summary
- The newly reconstituted rate-setting panel’s record of its last meeting has fine points made by Nagesh Kumar while calling for a 25-basis-point rate cut. The central bank’s priority order, though, spelt a 5:1 vote in favour of a steady rate.
This month’s monetary policy committee’s (MPC) meeting that voted to keep the Reserve Bank of India’s (RBI) policy rate steady was the first since this panel’s reconstitution.
That decision had the support of five members, including new members Saugata Bhattacharya and Ram Singh. But Nagesh Kumar, the third new member, cast a vote of dissent.
Citing “demand deficits" and “anchored" inflationary expectations, he called for a 25-basis-point rate cut, as RBI’s release of the meeting’s minutes shows.
Kumar flagged the contraction over two quarters of the cement, iron and steel and chemicals sectors, despite heavy government spending, as a concern, and said India risked hurting its competitiveness if the rupee rose against currencies of countries where policy rates were falling.
Also read: MPC more confident about inflation aligning to 4% target by next year: minutes
A revival in demand, he argued, would boost private investment. The rest of the panel, while acknowledging pockets of economic weakness, went with the reasoning that inflation must align durably with the 4% inflation target before going in for monetary easing.
Doing it prematurely, RBI governor Shaktikanta Das recently said, would be risky. The central bank has its priority clear.
