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  Business   Economy  22 Jun 2017  Repo rate: No premature policy action; Patel says RBI to wait for data

Repo rate: No premature policy action; Patel says RBI to wait for data

PTI
Published : Jun 22, 2017, 12:04 pm IST
Updated : Jun 22, 2017, 12:04 pm IST

Urjit Patel also underlined the need for resolution of stressed assets of banks and timely recapitalisation of PSU lenders.

RBI Governor Urjit Patel.
 RBI Governor Urjit Patel.

Mumbai: RBI Governor Urjit Patel had argued for avoiding "premature policy action" and waiting for more inflation data at the meeting of the interest rate setting panel earlier this month.

RBI's Monetary Policy Committee (MPC), which met on June 6-7, had kept the repo rate unchanged at 6.25 per cent, citing risks to inflation. As per minutes of the fifth MPC meeting, five of the six members had voted in favour of status quo on rates.

It was for the first time that the decision of the MPC, constituted last September, was not unanimous.

IIM-Ahmedabad faculty Ravindra Dholakia had advocated a 50 basis point cut in the repo rate, saying several noteworthy developments recently on prices and output fronts warrant a decisive policy action.

Patel, who heads the MPC, also underlined the need for resolution of stressed assets of banks and timely recapitalisation of public sector lenders. "Considering the high uncertainty clouding the near-term inflation outlook, there is a need to avoid premature policy action at this stage. I, therefore, vote for holding the policy repo rate at the current level of 6.25 per cent and maintaining the neutral stance of monetary policy," he said.

The Governor further said incoming data is expected to provide greater clarity on the durability of recent food and non-food disinflation. One more set of inflation data will be released by the government before next meeting of the MPC on August 1-2.

Data released after the RBI's policy review showed that retail inflation hit a low of 2.18 per cent in May from 2.99 per cent in April. Wholesale price inflation too fell to 2.17 per cent in May from 3.85 per cent in April.

As per the minutes, Dholakia favoured a 50 bps cut in policy rate. "In my opinion, this is the most opportune time for the MPC to effect a major cut of 50 basis points in the policy rate to bring it down from 6.25 per cent to 5.75 per cent," he opined. However, Patel was of the view that there is need to avoid "premature policy action".

The Governor further said the quiescent investment cycle remains a key macroeconomic concern and it is, therefore, imperative to ensure resolution of stressed assets of banks and timely recapitalisation of PSBs.

Voting in favour of status quo, RBI Deputy Governor Viral Acharya said tolerance for a slightly higher real rate of interest is justified to ensure weak banks do not find relatively low the hurdle rate for ever-greening of bad loans. "What is required for monetary policy to do its job better is to address the stress on bank (and highly-indebted borrower) balance sheets," he said.

As per the minutes, Patel said while transmission of past policy rate cuts continues - with some banks further reducing the deposit and lending rates - aligning administered interest rates on small savings to market rates can further strengthen the monetary transmission.

Tags: urjit patel, rbi, rbi rate cut, policy rates, ravindra dholakia, mpc, inflation, stressed bank assets, lending
Location: India, Maharashtra, Mumbai (Bombay)