'I Will Again Vote For 25-Basis Point Cut...' - RBI MPC Member's Take On Repo Rate

Nagesh Kumar, a member of the Reserve Bank of India’s ( RBI ) Monetary Policy Committee (MPC), has called for a 25 basis point cut in the repo rate, the RBI MPC Minute showed.  Kumar emphasised that this adjustment would help revive economic growth while keeping inflationary pressures under control. His remarks come as the central bank faces a delicate balancing act between stimulating growth and managing inflationary challenges.

Supply-Side Inflation
Kumar acknowledged that high inflation, particularly in vegetable prices, has been a result of a supply-side shock. He explained that this was driven by a seasonal supply-demand mismatch, which has already started to correct itself in November 2024. With this seasonal factor expected to ease, Kumar believes that the risk of sustained inflation from this source is diminishing, reducing the need for aggressive rate hikes.

Supporting Manufacturing
While inflation may be easing in certain sectors, the slowdown in the manufacturing industry remains a concern. Kumar pointed out that reducing the cost of capital could stimulate investment and boost consumer demand, which would be crucial for economic recovery. A rate cut would, in his view, serve as a necessary tool to encourage growth in manufacturing and, by extension, help ease inflationary pressures by enhancing supply capacity.

Risks of Rupee Appreciation 
Kumar also highlighted the broader global context, noting that many central banks, including the US Federal Reserve, have been easing their monetary policies in recent months. India faces a unique challenge if it does not follow this global trend of normalization. A failure to reduce rates could lead to further appreciation of the Rupee in real terms, potentially harming the competitiveness of Indian exports. Kumar stressed that the RBI must act cautiously to avoid this scenario.

Non-Rate Measures 
In addition to the proposed rate cut, Kumar recommended the use of non-rate measures to support economic growth. He suggested a 50-basis point reduction in the Cash Reserve Ratio (CRR) to enhance liquidity, providing additional support for the economy without directly altering interest rates.