Change in RBI’s stance suggests further price reductions: Nomura.

By Abhay Shah, Realty Quarter

The minutes of the Monetary Policy Committee show that the shift in policy position of RBI will result in price reductions in the future, said a report on Friday.

Governor Shaktikanta Das had confined himself to say that, in the future, there will be no price increases following the June 6 Policy Review, the change in a strategic position to “accommodative.”

The “technical definition” of the policy stance was the reasoning given by Japanese brokerage Nomura said.

We think that the MPC members have implicitly indicated a more favourable financial climate for continuing relaxation. The unanimous adoptions of a 25bp rate cut and change to ‘accommodative’ stance would reinforce this view, it said in a note.

At the next meeting in August, the majority of MPC members will remain to support a further reduction in prices.

The minutes say that Das points to “decisive monetary policy,” external member Ravindra Dholakia calls for reductions of 0.50% to limit the actual interest rate, while Pami Dua says the need to “boost sentiment.”

Deputy Governor Viral Acharya and external member Chetan Ghate, two dissidents of the six-member committee, said that their ‘ volt face ‘ quoted the adverse output gap.

The brokerage said that the MPC members had been surprised by the sharp drop in central inflation driven by the demand, although they continued to warn against increasing inflation in food prices.

“In general, we discover a definite transition from the policy function of the MPC members to the priority structure of development rescue in the window that offers low inflation.,” it said.

The GDP data for March indicate that growth decreases by two or almost five year low of 5.8%, whereas the same growth rate was 6.8% for FY19 and much lower than that of the economy, which was more than 7%.

Nomura said that the price panel is split in two on fiscal policy and food risks, although it supports development unison, with Acharya and Ghate being on one side.

The brokerage was “amazed” that no specific reference to the crisis was found within NBFCs.

“We believe the reticence to comment on the shadow banking crisis may reflect the MPCs view that financial regulations remain beyond their remit, or that they do not believe the risks of systemic contagion are significant,” it said.