Two external MPC members pitch for 25 bps repo rate cut

The RBI monetary policy committee in its meeting held June 5 to 7 decided to keep policy repo rate unchanged at 6.5%. Other policy rates including standing deposit facility (SDF) rate and bank rate were also left unchanged for the eighth time in a row.

New Delhi: Ashima Goyal and Jayanth Varma, two external members of the Reserve Bank of India’s monetary policy committee, pitched for a 25-basis points cut in the policy repo rate, which has been kept unchanged since February 2023, minutes of the June 2024 MPC meeting released on Friday showed.  

While Varma, a professor at the Indian Institute of Management (IIM), Ahmedabad, had made a case for the rate cut in the earlier policy reviews as well, Goyal joining the dissenting voice in the MPC indicates that the central bank would change its policy stance sooner rather than later.

Making a case for 25 basis points reduction in repo rate, Goyal said, “Spreads are high in India. Average loan rates are in double digits. While risk-based pricing is required, a cut in repo rates will prevent retail interest rates rising to unbearable levels.”

The RBI monetary policy committee in its meeting held June 5 to 7 decided to keep policy repo rate unchanged at 6.5 per cent. Other policy rates including standing deposit facility (SDF) rate and bank rate were also left unchanged for the eighth time in a row.

Goyal, Emeritus Professor, Indira Gandhi Institute of Development Research, and Varma are among the three external members of the 6-member MPC, which is chaired by the RBI Governor. Shashanka Bhide, Honorary Senior Advisor, National Council of Applied Economic Research, is the other external member.

In his statement at the meeting, RBI Governor Shaktikanta Das noted that high food prices remained a key factor in bringing down inflation to the targeted level of 4 per cent.

“Food inflation is the main factor behind the grudgingly slow pace of disinflation. Recurring and overlapping supply-side shocks continue to play an outsized role in food inflation,” Das said.

As per the latest official data, the headline retail inflation eased to 4.75 per cent in May from 4.83 per cent in the previous month. However, food inflation remained stubbornly high at 8.69 per cent in May.

Going forward, the baseline projections show inflation moderating to an average 4.5 per cent in 2024-25. In the immediate months, however, the impact of exceptionally warm summer months on output of certain perishables; a likely rabi production shortfall in some pulses and vegetables – particularly potatoes and onions; and the upward revisions in milk prices, warrant close monitoring, the governor added.