(Bloomberg) -- India’s policymakers disagreed on the timing of a rate cut with two of the six members in the monetary policy committee debating if moderating inflation justified keeping interest rates higher for longer, minutes of the panel’s meeting showed Thursday.
The Reserve Bank of India’s rate-setting committee voted four-to-two to keep the benchmark repurchase rate unchanged at 6.5% and retain its policy stance of “withdrawal of accommodation.” External members, Jayanth Rama Varma and Ashima Goyal, voted to change both.
India’s inflation is trending downwards and the current repo rate is well above what is needed to drive inflation to the 4% target, Varma said. Adjusted for inflation, a real repo rate of “1.5% is sufficiently restrictive,” he said, calling for a quarter point cut as a cautious first step.
Goyal, who has joined Varma in support of a rate cut since April, argued that while India’s growth rate is resilient, it is still below potential, giving room to lower rates. “Since Indian inflation is not well measured, and could be over or under-estimated, too much precision with regard to a target is unproductive,” she said.
India’s inflation eased below the central bank’s target for the first time in nearly five years in July due to statistical reasons. But price gains are expected to edge up in the September-December period as favorable base effects taper off.
Governor Shaktikanta Das said durable alignment of inflation to the central bank’s aim is still some distance away as the pace is slow and uneven. “Any justification for policy easing based on so called high real rates can be misleading,” Das said, warning against any premature easing.
The terms of the three external members — two of whom have been voting for rate cuts — expire before the next rate decision scheduled for Oct. 9.
Here’s what other members in the panel said:
- Das’s deputy Michael Patra said the MPC’s commitment to align inflation durably to the target has not yet been achieved, and “any faltering from this commitment could undermine the prospects of the Indian economy”
- Rajiv Ranjan, an executive director at RBI, said “more clarity and definiteness are needed - on food inflation outlook; spillovers of food price pressures to core inflation; domestic demand; and global risks,” before a pivot
- Shashanka Bhide, sided with officials of the RBI in exercising caution, preferring to wait as a good monsoon will help ease food inflation and help spur consumption demand. High food inflation would “hit growth adversely as it affects consumption and requires restrictive monetary policy to soften core inflation,” he said
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