A policy rate adjustment of 25 bps or multiples may not always be consistent with the evolving macroeconomic situation, says Shaktikanta Das
It was the anxiety to push growth that forced Reserve Bank of India governor Shaktikanta Das, two of his colleagues and external member Ravindra Dholakia to vote for an unconventional 35 basis cut in the repo rate.
"The economy needs a larger push. I am, therefore, of the view that a reduction in the policy repo rate by a conventional 25 bps will be inadequate. On the other hand, a 50 bps rate cut might be excessive and indicate a knee jerk reaction," he said. A policy rate adjustment of 25 bps or multiples may not always be consistent with the evolving macroeconomic situation," Shaktikanta Das said, according to the minutes of the MPC released by the RBI on Wednesday.
The other members in the MPC, Chetan Ghate and Pami Dua, voted for a 25-basis point reduction in the repo, which is the rate at which banks borrow from RBI by pledging their government bonds.
There is a need to boost weakening domestic demand and support investment, Das said, adding that the impact of the last three cuts can be seen gradually transmitting into the system. "With headline inflation projected to remain within the target over the next one-year horizon, supporting domestic growth by further reducing interest rates needs to be given the utmost priority," the minutes of the meeting said.
The ensuing trade war between the US and China, the monetary policy stance of major central banks and the recent dovish stance were some of the reasons Pami Dua considered while voting for a rate cut of 25 bps to tackle slowdown.
The economic outlook seems to have darkened since June policy, added Michael Patra. There is a need to use monetary policy judiciously given the evolving risk, said other MPC member Chetan Ghate, while BP Kanungo said that the benign CPI outlook will continue to remain till April-June 2020 and moderation in private consumption is 'worrisome'. Ravindra Dholakia said that the RBI must look at policy transmission in home, auto loans, and long-term bonds.
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 "Shaktikanta Das")
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