MPC members differ on quantum of rate cut

Mumbai: Dissent within MPC was of different kind during its August meeting. After a long time, all MPC members voted for a rate cut. But they differed on how much to cut.

Two external members- Chetan Ghate and Pami Dua voted to reduce the policy repo rate by 25 basis points (one bps is 0.01 per cent). While four members- Ravindra H. Dholakia, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das) voted to reduce the policy repo rate by 35 bps.

The Reserve Bank ended up lowering its benchmark policy rate by 35 bps to 5.4 per cent on Wednesday. For the first time the Reserve Bank lowered the rates at a rate different from a multiple of 25 bps. The Reserve Bank governor Shaktikanta Das had questioned the policy of revising interest rates in the multiples of 25 bps during a session at the World Bank after taking over as the Reserve Bank of India governor.


In the past MPC members have dissented against the majority vote, mostly taking a stand on rate that is opposite to the majority. For example, if the majority voted for a rate hike then the dissenter voted for a rate cut or vice-versa. But the MPC voted in unison to maintain the accommodative stance of monetary policy. “Since the inception of the MPC in Oct-16, the voting pattern suggests the highest degree of policy dovishness” said Shubhada Rao, chief economist, Yes Bank in a research note.

Even as past rate cuts are being gradually transmitted to the real economy, the benign inflation outlook provides headroom for policy action to close the negative output gap. Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate. “ We continue to expect the MPC to opt for incremental monetary accommodation” said Rao.” Basis today’s outcome, we now project another 25-40 bps scope for rate cuts in the next one/two policy reviews. This could potentially take the repo rate towards 5.00%, the lowest since the level of 4.75% seen during the immediate aftermath of the Global Financial Crisis.”