Week growth pointers spurred MPC to cut key rate

Mumbai, Feb 21 (IANS) Weak growth impulses along with expectations of lower food and fuel prices led to change in the country's monetary policy stance to "neutral", according to the minutes of the latest Monetary Policy Committee (MPC) meeting released here on Thursday.

Accordingly, the MPC voted to lower the key Reserve Bank of India (RBI) lending rate by 25 basis points (bps) to 6.25 per cent.

"Growth impulses have weakened and there is a need to spur private investment and strengthen private consumption, especially in the wake of slowing global growth," RBI Governor Shaktikanta Das was quoted as saying in the minutes of the meeting held earlier in February.

"Inflation readings since the December 2018 policy have shown a sharp decline. Hence, space has opened up for policy action to address the growth concerns in pursuance of the provisions of the RBI Act, as amended in 2016."

According to the minutes, Das noted that neutral stance will provide flexibility and "room to address challenges to sustained growth of the Indian economy over the coming months, as long as the inflation outlook remains benign".

On February 7, to bring down home and auto loans rates, the RBI not only lowered its key lending rate by 25 bps, but also turned the policy stance from "calibrated tightening" to "neutral".

Most of the six-member MPC were in favour of spurring growth, the minutes of the February monetary policy meeting showed. While the MPC delivered a surprise repo rate cut in a 4-2 split vote, members unanimously agreed to move the policy stance to 'neutral' from 'calibrated tightening'.

RBI's decision, in its final policy review of this fiscal, was guided by its "assessment of the evolving macroeconomic situation" wherein headline inflation was projected to soften further while the economy's growth impulses had moderated.