MUMBAI: Food prices and a higher rupee are dragging India’s inflation to a record low, but policymakers appear unconvinced the decline will stick.
While the Reserve Bank of India’s monetary policy committee broke ranks in June for the first time since it was set up nearly nine months ago, most policymakers were content to wait for more data before moving on interest rates.
The committee voted 5-1 to keep interest rates unchanged. Ravindra Dholakia, an economics professor at India’s top management school, voted for a rate cut — and a hefty 50-basis point reduction at that — minutes released on Wednesday showed.
The dissenting vote is seen as a coming of age for a committee put in place in September in what was hailed as one of the biggest reforms in the RBI’s 80-year history. The move freed the central bank governor from facing the brunt of government criticism, which has historically demanded both low borrowing costs and low inflation.
While holding rates steady, Governor Urjit Patel and the RBI cut the inflation forecasts after the meeting to 2 per cent to 3.5 per cent for the fiscal first half from a previous estimate of 4.5 per cent. The bank sees inflation edging up to 3.5 per cent to 4.5 per cent in the second half, also lower than the 5 per cent previously forecast.
The chance of a cut at the next meeting in August will likely be a close call.
“With divergent views on the MPC, Governor Patel’s vote is critical and in light of current conditions and his comments in the minutes, we believe he may prefer to hold out a bit longer, while shifting his tone more dovish,” economists at Goldman Sachs Group Inc. said in a note on Thursday.
Here’s the six members and how they’re leaning — hawks, doves or neutral — after the release of one of the most crucial set of minutes.
Urjit Patel (Neutral)
Ravindra Dholakia (Arch Dove)
Chetan Ghate (Neutral)
Pami Dua (Neutral)
Michael Patra (Hawk)
Viral Acharya (Slightly Hawkish)
— Bloomberg
