Mumbai: The panel that advises the Reserve Bank of India (RBI) on monetary policy was not in favour of a rate increase at its last meeting, the edited minutes of the meeting show.
The Indian central bank increased the policy rate by 25 basis points (bps) to 8.50% in its second quarter monetary policy review in October.
Only one external member of RBI’s technical advisory committee, out of six, was in favour of the 25 bps increase even as the members agreed that the message of policy should be hawkish.
Hawkish stance: Reserve Bank of India governor D. Subbarao.(PTI)
This is not the first time RBI has ignored the panel’s recommendation, having done so in its first quarter policy review. The panel is advisory in nature and its recommendation is not binding on RBI.
RBI doesn’t publish the minutes of the meeting but issues an edited version on its website.
While the members of the panel were not very hopeful about a global recovery, they also felt that domestic growth was moderating.
“In particular, investment activity was slowing due to tight monetary policy and several other factors, including global uncertainty and delay in clearing the projects,” according to the RBI release.
RBI has increased its policy rates 13 times since March 2010 to tame persistently high inflation. In the second-quarter policy review, however, the central bank said it may not be hiking rates in the next cycle.
All the members felt that inflation was a major concern and would not ease immediately. According to most of them, inflation was high because of supply-side issues and “the monetary policy tightening was impacting investment and growth and not inflation”.
The panel is chaired by RBI governor D. Subbarao and has the deputy governors as members. The external members include Shankar Acharya, Y.H. Malegam, Sudipto Mundle, Errol D’Souza, Ashima Goyal and Rakesh Mohan.