Frontloaded rate cut to boost growth

MPC minutes: Members speak

- MANOJIT SAHA

The large cut of 50 basis points (bps) in policy repo rate during the June meeting of the Reserve Bank of India's (RBI's) Monetary Policy Committee (MPC) was aimed at faster transmission and lifting economic growth at a time when inflation outlook remained benign, MPC members said, according to the minutes released on Friday.

The six-member rate-setting panel voted 5:1 in favour of 50 bps rate cut to 5.5 per cent. While there was no voting on stance, as it was not required by the statute, all members favoured change to "neutral" from "accommodative".

RBI Governor Sanjay Malhotra highlighted the need for growth-supportive policies as heightened global uncertainties might prompt businesses to put their investment decisions on hold. He also highlighted that private sector investments have been weak despite high capacity utilisation and improved corporate balance sheets.

"...while growth remains steady, it is lower than our aspirations," he said. On inflation, he said the projection was looking more benign than what was anticipated in the previous meeting in April.

"It is expected that the frontloaded rate action along with certainty on the liquidity front would send a clear signal to the economic agents, thereby supporting consumption and investment through lower cost of borrowing," Malhotra said while explaining why he voted for 50 bps rate cut.