Monetary Policy Committee meeting minutes reveal change in RBI's policy stance to deliver more rate cuts: Nomura

Governor Shaktikanta Das had limited himself to say that the shift in stance of the policy to 'accommodative' must be seen as there being no rate hikes in future

Press Trust of India June 21, 2019 17:41:52 IST
Monetary Policy Committee meeting minutes reveal change in RBI's policy stance to deliver more rate cuts: Nomura
  • A majority of the MPC members will continue to favour further easing of rates at the next meeting in August

  • Nomura said Deputy Governor Viral Acharya and external member Chetan Ghate have done a volte-face citing negative output gap

  • On inflation, the brokerage said the MPC members seemed to be surprised by the sharp fall in core, demand- driven inflation

Mumbai: The Monetary Policy Committee meeting minutes reveal that the change in RBI's policy stance will deliver more rate cuts in the future, a report said Friday.

Governor Shaktikanta Das had limited himself to say that the shift in stance of the policy to "accommodative" must be seen as there being no rate hikes in future, speaking after the policy review on 6 June.

Japanese brokerage Nomura said Das' explanation went by the "technical definition" on the stance of the policy.

"...we believe the MPC members have implicitly signalled that the economic climate has become more conducive for continued easing. The unanimous adoptions of a 25bp rate cut and change to 'accommodative' stance would reinforce this view," it said in a note.

A majority of the MPC members will continue to favour further easing of rates at the next meeting in August.

It said in the minutes, Das points out to "decisive monetary policy", external member Ravindra Dholakia calls for cuts of 0.50 percent to narrow the real interest rate, while Pami Dua speaks of need to "boost sentiment".

Monetary Policy Committee meeting minutes reveal change in RBIs policy stance to deliver more rate cuts Nomura

Representational image. Reuters.

The brokerage said Deputy Governor Viral Acharya and external member Chetan Ghate, two dissenters on the six-member panel, have done a "volte-face" citing the negative output gap.

On inflation, the brokerage said the MPC members seemed to be surprised by the sharp fall in core, demand- driven inflation, although they continue to warn of increasing food price inflation.

"Overall, we find that there is a clear shift in the MPC members policy function to a framework prioritising growth rescue in the window that low inflation provides," it said.

It can be noted that GDP data for March quarter suggested growth declining two a nearly five year low of 5.8 percent, while the same for FY19 came at 6.8 percent, much below the potential of the economy pegged at over 7 percent.

Nomura said despite the unison on supporting growth, the rate-setting panel is divided into two on fiscal policy and food risks, with Acharya and Ghate being on one side.

The brokerage said it was "surprised" to not find any explicit mention on the crisis within NBFCs.

"We believe the reticence to comment on the shadow banking crisis may reflect the MPCs view that financial regulations remain beyond their remit, or that they do not
believe the risks of systemic contagion are significant," it said.

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