‘Present policy rate and stance are well positioned for macroeconomic stability’

After the release of the minutes from December's Monetary Policy Committee (MPC) meeting — at which all six members voted unanimously for a 25-basis-point rate cut — Saugata Bhattacharya, an external member of the panel, spoke to Subrata Panda about the scope for further easing and the role of the Reserve Bank of India’s (RBI's) foreign exchange market interventions in shaping the policy outlook. Edited excerpts:

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Is there room for further rate cuts, or has the current easing cycle reached its end?

= Let me begin with the disclaimer that I speak for myself, not the MPC. Given the persisting uncertainty, it is difficult to provide forward guidance on the policy rate path. Decisions at each meeting will be based on the available data, evaluating the appropriate balance of risks.

Where do you see the terminal policy rate settling in this easing cycle?

= Based on the current information set, I believe the present policy rate and stance are well positioned for macroeconomic stability. However, this view may change as the economic environment evolves.

What would prompt a shift in the policy stance from neutral to accommodative?

= Given the forecast growth and inflation paths, and the overall macroeconomic balance, only severe adverse shocks to growth are likely to result in a change in the stance to accommodative. Even then, this would probably be redundant, since a neutral stance is consistent with further monetary policy easing.