The minutes of the June meeting of RBI MPC released on Friday showed that the two external members of the six member committee have made a strong case for cutting the policy repo rate which has been kept at 6.5% unchanged since February 2023.

They also favoured change in the policy stance from withdrawal of accommodation to neutral.

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Citing food inflation risk, the internal members however betted for maintaining the status quo and said the last mile of disinflation has been slow.

Jayanth R Varma had voted for rate cut and change in stance to neutral for the last few policy meetings and maintained his view in the June meeting too.

He had expressed concern about the growth sacrifice in 2024-25 induced by restrictive monetary policy.

“It now appears that the maintenance of restrictive policy for an unwarrantedly long time will lead to a growth sacrifice in 2025-26 as well,” Varma said.

He said the current real policy rate of around 2% is well above the level needed to glide inflation to its target.

Ashima Goyal said, “Status quoism is praised as being cautious.” She was one of the external members who voted for a 25 basis points cut to the repo rate and a change in the stance to neutral.

Countering the argument that robust growth gives space for monetary policy to remain tight, Goyal said growth is below potential and may slow further since consumption remains weak.

“Reducing unemployment is important for political and financial stability. Without a rise in productive employment, aggressive redistribution becomes more likely and may provoke a flight of wealth taking India back to the stagnant seventies,” she said.

The neutral real policy rate is around unity in Indian conditions of high unemployment and an ongoing transition to higher productivity employment. “Falling inflation has raised real repo above unity. This will reduce real growth rate with a lag,” she said.

However, the RBI governor Shaktikanta Das reiterated ‘persistently high food inflation’ for maintaining the status quo.

He warned that any hasty action in a different direction will cause more harm than good. It is important that inflation is durably aligned to the target of 4%.

He said the impact of exceptionally warm summer months on output of certain perishables, a likely rabi production shortfall in some pulses and vegetables – particularly potatoes and onions, and the upward revisions in milk prices, warrant close monitoring while emphasising on the importance of inflation durably aligned to the target of 4%.