Rate cut by the Reserve Bank of India last week under the governance of Urjit Patel triggered a split in the six-member Monetary Policy Committee. The split was seen when five members voted to cut interest rate while one senior member stood pat on taking a cautious stand in response to the record low inflation in India.
Michael Patra voted against the other members on a year-old MPC. That is quite significant to Sujan Hajra, a Mumbai–based chief economist at Anand Rathi Financial Services Ltd, who has also served as a director at the RBI. He thought what stood out was how the members read the inflation model differently with one wanting to stay cautious while the rest cut the benchmark repo rate by 25 basis points to 6 percent, reported Mint.
The RBI's inflation assessments have come under intense inspection after several bullish projections showed a big difference between the actual number and their forecast.
Chief economic adviser Arvind Subramanian slammed the regular forecast errors and said they are large and systematically one-sided in overstating inflation. He called on policy-makers to take a long, hard look at June's 1.5 percent record low reading.
Last December, the central bank had forecast headline inflation of 5 percent in March but the actual reading was 3.9 percent, below the RBI's 4 percent medium-term target.
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Room for another rate cut?
The Reserve Bank of India can cut rates again in December even as it maintains its neutral policy stance and expects inflation to rise from the June's record – low reading, according to Bank of America Merrill Lynch.
The research house had forecast for another rate cut by 25 basis point.
"Given that growth will remain weak, there is sufficient room to cut [rates] once more," said Indranil Sengupta, economist at Bank of America.
However, that expectation is against the majority of the analysts polled by Reuters last month, who believes that RBI will keep the rates unchanged after a 25 basis point cut in August until the end of next year.
