Why RBI MPC took off its helmet and stepped out of the crease

Nice piece by Aparna Iyer of Mint on the MPC minutes of Feb-19 meeting.

What made an inflation-worried monetary policy committee (MPC) turn into a growth benefactor in under two months?

The minutes of the Reserve Bank of India’s (RBI’s) latest MPC meeting shows that the collapse of food inflation was not the only reason. Recall that the rate cut decision got four votes, with two dissenting voices, at the meeting earlier this month. A big surprise was that long-standing hawk Michael Patra voted for a cut.

All members agreed that food inflation will remain benign for the next 12 months, even though they expected prices of vegetables to bounce back, showed the MPC minutes. But what spooked everyone was the threat of a global growth slowdown, and the probability of it adversely affecting the Indian economy, through the trade and investment channel.

In particular the chart of different MPC member voting since Oct-2016 is really nice.

There has been at least one dissenting vote in nine of the last 11 RBI MPC meetings.
There has been at least one dissenting vote in nine of the last 11 RBI MPC meetings.

Further, what led to one MPC member who was a hawk to become a dove?

In fact, Patra, who heads the monetary policy department at the central bank, termed these risks as dark clouds and suggested the need to insulate the economy through a policy response. Recall that growth concerns hardly featured in his comments in the previous meetings when global trade tensions had already gathered steam.

Patra has support from RBI governor Shaktikanta Das and members Ravindra Dholakia and Pami Dua as well. Dholakia expects there will be room for deeper cuts in the coming months.


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