Voices for interest rate cut growing within RBI’s rate-setting panel

Voices for interest rate cut are growing within the Reserve Bank’s rate-setting panel with external member Ashima Goyal joining ranks with another member Jayanth R Varma who for long has been advocating to reduce the key policy rate by at least 25 basis points.

Reserve Bank’s monetary policy committee voted for a status quo in repo rate with four members voting in favour and two against.

“Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50 per cent.

“Dr. Ashima Goyal and Prof. Jayanth R Varma voted to reduce the policy repo rate by 25 basis points,” according to Monetary Policy Statement, 2024-25 Resolution of the Monetary Policy Committee (MPC) released by the central bank.

Goyal, Varma and Bhide are external members on the MPC. Ranjan, Patra and Das are RBI officials.
In the February 2024 and December 2023 MPC meetings, Varma had made a case for lowering the benchmark interest rate by 25 basis points.

This time, Goyal too joined and voted for a rate cut.

The six-member MPC takes decision based on majority vote.

Two members advocating rate cut comes close on the heels of some central banks from advanced economies like Switzerland, Sweden, Canada and Euro area have begun their rate easing cycle during 2024.

On the other hand, market expectations of rate cut by the US Federal Reserve, which was higher earlier, have moderated subsequently.

Unveiling the monetary policy, Governor Das said there is a view that in matters of monetary policy, the Reserve Bank is guided by the principle of ‘follow the Fed’.

“I would like to unambiguously state that while we do keep a watch on whether clouds are building up or clearing out in the distant horizon, we play the game according to the local weather and pitch conditions.
“In other words, while we do consider the impact of monetary policy in advanced economies on Indian markets, our actions are primarily determined by domestic growth-inflation conditions and the outlook,” Das said.

The Reserve Bank of India has been holding the key interest rate (repo) at 6.5 per cent since February 2023.