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MPC minutes: RBI governor says economic activity clearly losing traction

MPC members are concerned about India’s economic growth, inflation and global trade war.

ETMarkets.com|
Updated: Jun 20, 2019, 06.26 PM IST
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NEW DELHI: India’s growth impulses have weakened and inflation is likely to remain below 4 per cent throughout 2019-20 despite transmission of the policy rate cuts, said the Reserve Bank of India Governor Shaktikanta Das.

“There is a clear evidence of economic activity losing traction with GDP growth in March quarter slowing down to 5.8 per cent,” Das said during RBI money policy meet, which took place during June 3-6.

Minutes of the last meeting, which were released on Thursday also showed that the members of the Monetary Policy committee were concerned about India’s economic growth, inflation and global trade war.

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) at its review cut policy rates by 25 basis points for the third straight time.

All the six members of the MPC members, including Das, Viral Acharya, Michael Patra, Ravindra Dholakia, Pamia Dua and Chetan Ghate, voted for a cut.

The minutes also showed that Acharya was looking more concerned about inflation’s outlook. “There is an important upside risk to RBI’s projected inflation trajectory that I wish to highlight in particular – that of fiscal slippage,” said Acharya.

Highlighting that the monsoon uncertainty is likely to further push food prices, the deputy governor said this may worsen the agrarian distress.

Volatility in global crude oil prices is another major risk to inflation, he added.

While sharing his insights on the global trade war, Acharya said a full scale trade war blowout may result in an emerging markets selloff by foreign portfolio investors.

Along with other members of the MPC, he also voted for change in stance from neutral to accommodative.

“This is because the uncertainty around the upside risks to inflation I have highlighted will resolve only gradually over the next few months and can be factored into future MPC decisions in a data-dependent manner, but seem highly unlikely to lead to a rate hike at the next policy,” he said.
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