New Delhi [India], December 21 : The ongoing economic slowdown in the country has become serious enough to demand immediate policy attention, said Monetary Policy Committee (MPC) Member Nagesh Kumar.
Advocating for 25 basis points (bps) cut in the repo rate during the December MPC meeting, Kumar highlighted the urgent need to address the dual challenges of declining growth and inflationary concerns.
He said, "The extent of the slowdown is serious enough to warrant policy attention".
According to the minutes of the meeting released by the Reserve Bank of India (RBI), Kumar emphasized that economic conditions have worsened significantly since the October 2024 MPC meeting.
Kumar pointed to a steep decline in India's economic growth. The GDP growth rate for Q2 of 2024-25 has dropped to 5.4 per cent, compared to 6.7 per cent in Q1 of the same fiscal year and 8.2 per cent in 2023-24.
He noted that this decline is sharper than expected and has led to a broad-based downgrade in GDP growth forecasts for the year.
In light of these developments, Kumar argued that a 25 bps rate cut could help revive economic growth without exacerbating inflation. He added that inflationary pressures might ease with seasonal corrections in prices, creating space for supportive policy measures.
He stated "I believe that a rate cut would help in reviving economic growth without worsening the inflationary situation, which may soften with seasonal correction in prices. Hence, I will again vote for a 25-basis point cut in the repo rate while keeping a neutral stance".
Additionally, Kumar also recommended exploring non-rate measures to improve liquidity in the economy. He suggested a 50 bps cut in the Cash Reserve Ratio (CRR) as one of the measures to enhance liquidity and support economic recovery.
The December MPC meeting minutes reflect growing concerns over the state of the economy, with two out of the 6 members voting for reducing the policy rates. While other four members including former RBI Governor Shaktikanta Das voted to keep the policy rates unchanged.
The next meeting of the MPC is scheduled for February 5 to 7, 2025.
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