RBI Guv for Keeping Monetary Arsenal Dry for Judicious Use in Future: MPC Minutes

A durable revival of the economy depends on sustained policy support to resuscitate activity in various sectors, restore employment, ease financial stresses facing households, businesses and financial intermediaries, instil confidence and anchor financial stability before it slips away, he said. RBI Executive Director Mridul K Saggar said the recovery path is inextricably linked to the course the pandemic might take and complete normalisation will be difficult till it is overcome.

External member on the rating setting panel, Ravindra H Dholakia said there are high uncertainties regarding the macroeconomic environment, adding that he was sceptical about the deep stagflationary conditions prevailing in the country. “Although the present circumstances are truly exceptional, the primary mandate given to MPC for inflation targeting at 4 percent with the upper tolerance limit of 6 percent has to be respected,” said Dholakia.

MPC member Pami Dua was of the view that at this juncture, it is best to adopt a wait and watch strategy and look at incoming data to assess the evolving macroeconomic situation. “I therefore vote to keep the policy rate unchanged and to continue with an accommodative stance as long as necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target, going forward,” Dua said.

External member Chetan Ghate said he has been advocating a more cautious path for policy rate reductions since February 2019. “However, I have been in a minority in the MPC. Inflation has now been above the upper band of 6 per cent for a number of months. Notwithstanding large rate cuts to spur growth over the last year and a half, growth has steadily declined despite 250 bps in cuts since February 2019,” Ghate said.

Future MPC meetings should not go soft on inflation, he added. The next MPC meeting is scheduled to held during September 29 to October 1, 2020.