Monetary Policy Committee's Stance on Rate Cuts

During the December 4-6 meeting, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) showed a divided opinion on policy easing. While two members, Nagesh Kumar and Ram Singh, voted in favor of a rate cut, four others expressed hawkish views, making any potential February rate cut dependent on the new RBI governor, Sanjay Malhotra, and his incoming deputy.

Outgoing governor Shaktikanta Das emphasized the need to control inflation, stating that "policy priority at this critical juncture has to be on restoring the inflation-growth balance." He warned that any other approach would be counterproductive and ill-timed. Similarly, deputy governor Michael Patra highlighted the need for a durable reduction in inflationary pressures to sustain growth impulses.

Inflation and Food Prices Concerns

RBI member Rajiv Ranjan stressed the importance of lower food prices and the ongoing rabi season, which will provide clarity on expected corrections in food prices. External member Saugata Bhattacharya acknowledged the adverse shift in the growth-inflation balance and global food price concerns, advocating for vigilance to avoid policy errors.

In contrast, Kumar and Singh argued for rate cuts to stimulate investment and demand, highlighting the limits of monetary policy in addressing supply-side inflation and the need for a shift in policy to counter the economic slowdown.