Subbarao overruled advisory panel, kept repo rate steady

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SummaryOne member felt that higher growth would help in reducing the fiscal deficit.

Reserve Bank of India Governor D Subbarao went against the suggestion of majority of external members of the RBI’s advisory panel that advised lowering the repo rate in the second quarter review of monetary policy on October 30.

According to the minutes of the quarterly meeting released on Wednesday, five of the six external members of the Technical Advisory Committee on Monetary Policy (TAC) were of the view that the central bank should reduce the repo rate. However, the key policy rate was left unchanged at 8 per cent.

Of these five members, three recommended a reduction by 25 basis points, while the other two suggested a sharper reduction of 50 bps.

“Among the members who recommended a repo rate cut by 25 bps, one member also recommended a cut in CRR by 25 basis points to help banks bring down lending rates without reducing deposit rates,” the RBI said.

TAC members felt that even though inflation is sticky, there were no demand pressures but there was a need to revive investments.

“One member felt that higher growth would help in reducing the fiscal deficit. One of the six members was of the view that the decline in the growth rate was largely due to fiscal factors; since inflation expectations are elevated, no change in the monetary policy stance is necessary,” the minutes said.

The meeting was chaired by Subbarao and was attended by YH Malegam, Indira Rajaraman, Sudipto Mundle, Errol D’Souza and Ashima Goyal. Rakesh Mohan and Shankar Acharya could not attend the meeting.

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