RBI does not have to follow what other central banks do, says MPC external member Nagesh Kumar

RBI monetary policy committee’s external member Nagesh Kumar

The Reserve Bank of India (RBI) does not have to follow what other central banks are globally doing in terms of rate cut, said Monetary Policy Committee’s (MPC) external member Nagesh Kumar in an interview with Moneycontrol on December 20.

“The US Fed has cut the policy rate by 100 basis points in three rounds. We do not have to follow what other central banks do,” Kumar said during an interview.

He further added that if the RBI does not follow the process of normalisation when most others have moved forward, it runs the risk of currency appreciation.

“India needs to guard against the risks of currency appreciation in real terms as it would hurt the competitiveness of Indian products,” he said.

Kumar, in the December monetary policy voted to cut repo rate by 25 basis points (Bps) while keeping the stance at ‘Neutral’. He said that a rate cut would help in reviving economic growth without worsening the inflationary situation, which may soften with seasonal correction in prices.

The RBI in the December monetary policy kept the repo rate unchanged at 6.50 percent, with four members voted for status quo and two members voted to cut rates.

Both external members, Nagesh Kumar and Ram Singh, voted to reduce the policy repo rate by 25 bps.

Going ahead, Kumar said that MPC meeting in February would take stock of how the inflation-growth balance was shaping up between now and then against the backdrop of global trends.

In the December policy minutes, Kumar had taken a note on India’s sluggish growth in the second quarter of the current financial year. He said that the extent of the slowdown is serious enough to warrant policy attention.

India’s GDP growth slumped to its lowest level in seven quarters at 5.4 percent in the second quarter of FY25, as mining growth contracted to an eight-quarter low and manufacturing and utility services took a hit.

On the sluggish growth, Finance Minister Nirmala Sitharaman said that the government believes the GDP growth slowdown in Q2FY25 "is a temporary blip" and that an improvement will be seen in coming quarters.

Further, on the inflation front, where other MPC members also expect the easing food inflation ion coming months, Kumar also believes that it will ease in coming months.

“Keeping in mind the easing of vegetables and edible oil in November, food inflation should be easing further in the coming months,” he added.

In November, India’s retail inflation eased to 5.5 percent in November from a 14-month high of 6.2 percent in the previous month, as food prices cooled off. Food inflation had eased to 9 percent for the month compared with 10.9 percent in October.