New Delhi: The discussion over when to ease interest rates is getting more heated, as it seems that the external members of the Reserve Bank of India's monetary policy committee are beginning to agree that high rates are detrimental to economic growth, reports said.
Jayanth Rama Varma and Ashima Goyal voted in favor of a rate drop during the June meeting, claiming that an overly restrictive policy would hinder growth.
The third external official on the six-member committee, Shashanka Bhide, voted against easing, but he acknowledged in an email response to inquiries that inflation-adjusted rates higher than 1.5 per cent "is not supportive of higher growth." India now has a real, or inflation-adjusted, rate of 1.75 per cent.
Despite this, Bhide continued to urge caution, pointing out that inflation and rapid economic development might often be "sub-optimal."
Governor Shaktikanta Das and other RBI officials who have maintained their rather aggressive approach on inflation make up the rest of the monetary policy committee.
According to the minutes of the most recent MPC meeting, Das contended that any "hurried action" would cause more harm than benefit.
For nearly a year, the committee has maintained the benchmark repurchase rate at 6.5%, despite inflation continuing to exceed the Reserve Bank of India's 4 per cent objective.
Lead economist at Emkay Global Financial Services Ltd. Madhavi Arora stated that it is uncertain if the divergent opinions would result in any changes to interest rates in the upcoming months. She forecast that the Federal Reserve's easing will probably come later, if at all.
According to a Bloomberg survey of economists, the RBI will cut rates in 2024's last quarter. On August 8, a rate decision will be made.
According to Varma, an external member of the MPC, monetary policy should be "only mildly restrictive, so that the growth sacrifice is modest" when inflation approaches the target.
Bhide denied the idea that excessive borrowing rates have stifled growth, arguing that domestic demand has been the primary driver of the recent quick expansion of more than 7%. Going forward, "we need supportive external demand conditions" in order to maintain that pace, he stated.
Varma contended that, given its "current stage of the demographic transition," India requires stronger growth rates than those anticipated for the following two years.
When the committee's tenure expires in October, both MPC members will go. More of their email responses to inquiries are included below:
Bhide stated, "It is critical to acknowledge that our current inflation rate is lower and that we must maintain this lower inflation rate near the target." According to Bhide, "a well-distributed normal monsoon would be supportive of rural growth."
The MPC is not waiting for the US Federal Reserve to lower interest rates first, as both members denied. "I think there are sincere disagreements here," Varma remarked.
"I would prefer not to make assumptions about the behavior of other MPC members in upcoming meetings. I'm glad another person in the meeting brought up the worries about current growth," Varma remarked.
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