In its previous monetary policy review in December 2018, the RBI had kept interest rates unchanged but held out a promise to cut them if the upside risks to the inflation do not materialise. The MPC also changed the policy stance to "neutral" from "calibrated tightening". The central bank had maintained the status quo in the last two Monetary Policy Committee meetings.
When asked about transmission and banks' reluctance to pass on the rate decreases to borrowers, Das said it is up to the individual banks to take a call on their lending, underlining that the RBI only gives a directional move.
The repo rate is the rate at which the Reserve Bank lends short-term money to the banks, while the reserve repo rate is the rate at which the central bank borrows money from commercial banks.
India's retail inflation fell to a 18-month low of 2.19 per cent in December.
The former finance secretary-turned governor explained that the price stability is defined as keeping the headline inflation number at the mandated 4 per cent in the medium-term and asserted that the Monetary Policy Committee has not done anything beyond the provisions of the RBI Act. This too at a time when GDP growth forecast has been revised downward, both for FY19 to 7.2 percent from 7.4 percent earlier at that for FY20 to 7.4 percent.
The Modi government has been pushing for a rate cut by the RBI as it looks to support growth by increasing credit offtake to key sectors of the economy.
Further, as per MPC, investment activity is recovering but supported mainly by public spending on infrastructure and that output gap has opened up slightly.
It could sow the seeds for inflation - especially when added to the fiscal stimulus in the budget - in the second half of the next financial year, which begins on April 1, he warned.
The central bank projected GDP growth for 2019-20 at 7.4 per cent. "The need is to strengthen private investment activity and buttress private consumption", the MPC statement said.
"In particular, trade tensions and associated uncertainties appear to be moderating global growth", it said.
While MPC voted unanimously to change the stance to "neutral", only four out of six members voted for a rate cut, providing glimpse of the changing dynamics of MPC, though somewhat on expected lines.
"Finally, several proposals in the union budget for 2019-20 are likely to boost aggregate demand by raising disposable incomes, but the full effect of some of the measures is likely to materialise over a period of time", the committee said in the statement.
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