HDFC Bank India
HDFC Bank headquarters pictured in Mumbai, India, Dec.4, 2015.Reuters File

Ritualistic description of RBI policymakers as "hawkish" or "dovish" depending on their stance towards repo rate is "misleading" given the unanimous decision of the Monetary Policy Committee (MPC) on October 4 to cut repo rate by 25 bps to 6.25 percent, said Abheek Barua, chief economist at HDFC Bank. 

The six-member MPC comprising equal number of representatives from the Reserve Bank of India (RBI) and government-nominated members voted unanimously in favour of a rate cut.

"Before the meeting, the markets had slotted the MPC members into neat 'dove'and 'hawk' categories. The unanimity in votes for the rate cut decision suggests two things. First, this binary classification is somewhat misleading when it comes to gauging policy action and instead of being constrained by dogma, the MPC members can take a comprehensive data-dependent approach to the problem at hand," Barua said in a note.

"Second, it also reveals the central bank's need to support growth is important at this stage given the large output gap and soft inflation," he added.

He said that another rate cut is likely when the MPC meets for its next meeting in December this year, provided inflation stays benign and global markets remain conducive.

"If the decline in food inflation is more than expected and if the global markets remain stable around the Fed's decision in December, another 25bps cut in the repo rate could come as early as the next monetary policy review of the RBI," Barua said.

In its monetary policy statement, the MPC said upward risks to costs due to increase in minimum wages, salary arrears on account of 7th pay panel's proposals and higher minimum support prices notwithstanding, the target for retail inflation remains around 5 percent by March 2017.

Retail inflation dropped to 5.05 percent in August this year from 6.07 percent in the preceding month, aided by a fall in food inflation to 5.91 percent from 8.35 percent in July this year.