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  Business   In Other News  20 Dec 2019  MPC minutes hint at rate cut in February

MPC minutes hint at rate cut in February

Published : Dec 20, 2019, 1:31 am IST
Updated : Dec 20, 2019, 1:31 am IST

Green shoots seen, capex cycle may be turning up.

Reserve Bank of India
 Reserve Bank of India

Mumbai: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) could resume cutting rates early next year going by the indications provided in the minutes of meeting of the fifth bi-monthly monetary policy review that was held during December 3-5.

The minutes show that the MPC believes the recent surge in food inflation to be transitory, as rabi sowing is catching up from the setback caused by the delay in kharif harvesting and unseasonal rainfall in October and early November. Moreover, the storage in major reservoirs, the main source of irrigation during the rabi season, was at 86 per cent of the full reservoir level as on November 28, as compared with 61 per cent in the same period a year ago. By November 29, rabi sowing was only 0.5 per cent lower than the acreage covered a year ago.

"Overall, several uncertainties cloud the growth-inflation outlook. First, the surge in food inflation in last three months, driven up by a spike in onion and other vegetable prices, could be transitory. It is likely to reverse gradually as late kharif output comes to the market," according to the minutes released on Thursday.

The six-member MPC of the RBI had stumped the market as it unanimously voted to keep rates unchanged while continuing with an accommodative stance. The decision to hold interest rates was triggered by the recent spike in inflation.

Madan Sabnavis, chief economist at Care Ratings, said, "The reading of the minutes give an indication that the pause in December policy was one-off. They are indicating that green shoots are around and that the surge in food inflation is transitory. So we expect the RBI-MPC to cut rates in February."

RBI governor Shaktikanta Das said that there are some indications that the capex cycle may be turning up as reflected in an increase in the share of funds deployed in fixed assets to 45.6 per cent during H1 2019-20 from 18.9 per cent during H1 of 2018-19, based on the results of 1,539 listed private manufacturing companies. Moreover, there is an increase in total cost of projects sanctioned in the private sector by banks/financial institutions to Rs 79,525 crore in Q2 of 2019-20 from Rs. 45,781 crore in Q1.

"There is policy space, the use of which, however, needs to be appropriately timed for ensuring its optimal impact," said Das.

"The MPC recognises that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture. Accordingly, the MPC decided to keep the policy repo rate unchanged and continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target," showed the minutes of the meeting.

Retail inflation increased to 5.54 per cent in November higher than the 4.62 per cent in October. Retail food prices, which make up nearly half of India's inflation basket, rose 10.01 per cent in November from a year earlier, against 7.89 per cent in October.

Tags: monetary policy committee, reserve bank of india