RBI's policy dilemma: To look at inflation or growth for deciding rate action

A forward looking approach would prompt rate cut as H2 GDP growth likely to be softer

- MANOJIT SAHA Mumbai, 18 November

The consumer price index (CPI)-based inflation hitting an all-time low in October would encourage the six member monetary policy committee (MPC) of the Reserve Bank of India (RBI) to cut the policy repo rate in its upcoming December 3-5 meeting. However, the July-September GDP growth, भारतीय Ry expected to be above 7 per cent, may act as a deterrent.

The MPC has maintained a status quo on interest rates since June. The policy repo rate has been cut by 100 basis points (bps) since February. While cutting the rate by 50 bps in June, the central bank changed the policy stance to neutral from accommodative. In the October policy, there was consensus among MPC members for a status quo on rates, but two external members wanted the stance to be changed back to accommodative.