Economy

Fixing weak growth is highest priority: RBI meeting minutes

Updated : August 22, 2019 06:58 AM IST

Weakening growth of the Indian economy and benign retail inflation prompted the Reserve Bank of India to reduce key interest rates amid concerns of inadequate rate transmission, according to minutes of RBI's monetary policy meeting released on Wednesday.

The RBI cut its benchmark interest rates for a fourth straight time in August. In an unusual move, RBI's Monetary Policy Committee on August 7 cut the repo rate by 35 basis points, underscoring its worries about the near-five year low economic growth pace.

RBI governor Shaktikanta Das said that, given the current and evolving inflation and growth scenario at this juncture, it can no longer be a business-as-usual approach, showed minutes.

Das and three MPC members had favoured a 35-basis point reduction, against the normal practice of 25 or 50 basis points change, in the third bi-monthly monetary policy of 2019-20. The other two members had voted for a 25-basis point cut in the policy.

Annual retail inflation in July eased to 3.15 percent from an eight-month high of 3.18 percent in June, staying below RBI's 4 percent medium-term target for a 12th straight month.

"In view of a weakening of domestic growth impulses and unsettled global macroeconomic environment, there is a need to bolster dwindling domestic demand and support investment activity, even as the impact of past three rate cuts is gradually working its way to the real economy," said the governor, according to the minutes.

"The economy needs a larger push. I am, therefore, of the view that a reduction in the policy repo rate by 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, adding that "hence, at times it is apposite" to calibrate the size of the conventional rate adjustment.

While the RBI has lowered the repo rate by 1.1 percentage points in 2019, the banks are yet to pass on the entire benefit of lower interest rate to borrowers. Das has recently urged all banks to link their interest rate with repo for faster transmission of the central bank's policy actions.

Most members of the committee, however, felt rate transmission would be faster in the coming weeks and months aided by surplus liquidity in the banking system.

(With inputs from agencies)

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