Developments since June 6 decision show why we need to be cautious: MPC's Nagesh Kumar

MPC’s Nagesh Kumar

- 

The Reserve Bank of India’s (RBI) decision earlier this month to tighten its stance to ‘netrual’ from ‘accommodative’ even as it cut the policy repo rate by a larger-than-expected 50 basis points (bps) to 5.50 per cent caught markets off-guard.

However, according to Nagesh Kumar, one of the three external members on the central bank's Monetary Policy Committee (MPC), developments since the June 6 rate cut show why policymakers need to be cautious. “Although the inflation numbers up to May are looking very good, with oil prices shooting up due to the Israel-lran conflict, you never know what is in store. So, a neutral stance allows you freedom to adjust your actions. Since the MPC’s decision on June 6, a lot has changed. We live in a very dynamic world, and that is why we need to be cautious,” Kumar said.Global crude oil prices rose to around $75 per barrel after Israel attacked Iran on June 13. Investors are now anticipating another sharp increase in oil prices after the US said on June 21 it had bombed three Iranian nuclear facilities. Speculation is rife if lran — which has called the US attack outrageous and said it reserves all options to defend its sovereignty — will look to retaliate by blocking the Strait of Hormuz, a key waterway which handles almost a quarter of the global oil trade.

In an interview with Siddharth Upasani, Kumar — Director and Chief Executive of New Delhi-based think-tank Institute for Studies in Industrial Development — also discussed how a consensus was finally achieved on his calls for a 50 bps rate cut and why growth numbers are not showing a broad-based revival, among other subjects. Edited excerpts:You said on at least on a couple of occasions before June that the MPC could be more ambitious and go for a 50 bps rate cut. So, you finally got what you wanted.