MC EXCLUSIVE 'Meeting-by-meeting' decisions needed, given the uncertainty, says RBI MPC member Saugata Bhattacharya

Saugata Bhattacharya

Saugata Bhattacharya, one of the external members of the Reserve Bank's monetary policy committee, told Moneycontrol in an exclusive conversation that in light of the evolving geopolitical situation, volatility in crude oil prices and elevated uncertainty, any rate action shall have to be based on incoming data, and it is difficult to provide a guidance at this point.

Saugata also said that any front-loading of rate cuts is not needed as India's economic activity still remains resilient. The economist was the only member of the RBI MPC to have voted for a 25 basis points (bps) rate cut in the June policy while rest voted to cut the repo rate by 50 bps, as rolled out in the June policy, to support growth.

“Even factoring in potential growth data revisions in FY25 and FY26, the economic activity - going by current high frequency indicators - remains resilient,” Bhattacharya said.

Edited excerpts:

After the June monetary policy, uncertainty across the globe has increased substantially. What could be RBI’s action on the rate front going ahead?

It is very difficult to understand the ramifications of this type of geopolitical shock; quantifying it may be more difficult. This (West Asia conflict) is just one of the sources of uncertainty. Rather than specific events, we need to get a sense of the effects of the totality of the various vectors of uncertainty.

Given the present, evolving and likely continued elevated levels of uncertainty, rate actions will have to be based on incoming data and an assessment of the associated macro-financial environment.

Will rising crude oil prices be a concern for the RBI, likely making a case for increasing inflation projections?

I think it is too early to re-assess macroeconomic projections basis what might turn out to be brief spike in crude oil prices. However, we need to monitor ongoing developments and assess assumptions only when a trend begins to emerge. There are multiple evolving drivers of global oil and metals prices which need to closely watched.

When all other members have voted for 50 bps rate cut, why did you feel that a 25 bps cut was enough?

While the inflation outlook provides space for significant policy easing, the growth impulses, both in the near past as well as forecast in FY26, to my mind, it does not necessitate front-loading rate cuts. Even factoring in potential growth data revisions in FY25 and FY26, economic activity, going by current high frequency indicators growth remains resilient. If you recall, in the April minutes, I had noted that the forecasted moderate inflation path opens up more space for “good news” policy easing. Moreover, the present resilience of economic activity does not as yet necessitate additional “bad news” actions associated with prospects of a significant growth slowdown.

When you said ‘near- and longer-term forecast of inflation offers more space of easing’, are more rate cuts on the card to revive growth?

The elevated uncertainty warrants that policy decisions be taken considering incoming data on a “meeting-by-meeting” basis. Although at this point the real repo rate does seem restrictive, there is a need to take a “through the cycle” view which requires a careful monitoring of incoming data to decide on the actual extent of this potential easing space. It is very difficult to provide guidance at this point.

Can we see some improvement in the GDP projections in next policies?

Again, I think it is too early to assess the contours of a global equilibrium into which the world economy might settle over the next few months. In these unsettled times, it is probably not wise to change forecasts frequently. I think RBI has taken the exact right decision on retaining the growth forecast.

What was the rationale for CRR cut, is it just to provide durable liquidity during festive season or surplus liquidity narrowing is expected during that period?

It is not my remit as an MPC member to comment on liquidity decisions. I need to emphasise that RBI’s dynamic and adept liquidity management since January and the well-thought series of liquidity measures have led to a de facto deeper policy easing by inter alia anchoring short term rates below the repo rate and accelerating transmission, reinforced by clarity in communicating intent. I view the CRR decision in this context.