Prudence wins the day: RBI does not effect a knee-jerk rate cut

By not dropping its inflation focus, RBI showed it'll go by what the economy needs and not what the government may want

- MYTHILI BHUSNURMATH

Here's something about the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meetings that makes these the cynosure of all eyes. What stood out about the meeting that concluded on Friday, however, was not only the usual toss-up between growth and inflation. Or the fact that it was the first after the government waded into RBI's territory with first commerce and industry minister Piyush Goyal and then finance minister Nirmala Sitharaman making public statements on the need to cut policy rates. Rather, it was the fact that it was the last MPC meet scheduled to be held under the chairmanship of RBI Governor Shaktikanta Das whose (extended) term ends on 10 December.

The unstated question on everyone's mind was whether in the choice between supporting growth and fighting inflation, the MPC (or more correctly, the governor, since he has a casting vote) would veer towards the former, as desired by the government, or continue its ongoing fight against high inflation.

Would Das succumb to government and market pressure or stand by what has long become what seems like an act of faith with him? That the bank would "remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth."

That question was answered unambiguously by Das. The present growth-inflation balance requires the central bank to retain its vigil on inflation even as it keeps an eye on economic growth. No wonder the MPC voted by a 4:2 majority to keep the policy rate unchanged at 6.5%, as also the stance at neutral.