A flexible MPC wary of accommodative turn, but may back measured rate cuts
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Mumbai: The Reserve Banks of India's Monetary Policy Committee (MPC) may deliver interest rate cuts in a measured way and raise liquidity, but it is unlikely to shift its monetary stance from neutral to accommodative as it weighs the implications of the global trade war on financial markets.All members of the MPC said that there is a need to continue with the neutral stance to retain flexibility and to act appropriately as global financial conditions evolve.RBI executive director Rajiv Ranjan also highlighted the subtle change in the wording of the stance to "...a durable alignment of inflation with the target", implying flexibility in the MPC's approach."Given the rhetoric on tariffs, uncertainty in global financial markets and trade policy, we don't see a change in stance but the RBI should provide liquidity to ensure growth is prioritised," Sameer Narang, head of the economic research group at ICICI Bank, said in a report.Banking system liquidity has continuously been in deficit since mid-December and has had a daily average deficit of ₹1.53 lakh crore in February, RBI data showed.Among the MPC members, Rajiv Ranjan said that growth slowdown concerns are more evident today. Governor Sanjay Malhotra, while expressing optimism on agriculture growth and expected pick-up in industrial activity, stressed the need to maintain a high growth momentum. Among the external members, Nagesh Kumar and Saugata Bhattacharya expressed concerns about slowing growth this year, particularly in the manufacturing sector."To change stance, assessment on growth needs to change. Right now, the RBI MPC members expect growth to revive while external MPC members are more concerned," said Gaura Sengupta, chief economist at IDFC First Bank."Plus, given current system deficit liquidity conditions, suggest conditions are far from neutral. The neutral stance also suggests that rate cuts would be measured given risks from adverse weather events, volatility in global financial conditions and trade tensions," Sengupta added.
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