Back4 of 7 external members wanted repo rate cut
4 of 7 external members wanted repo rate cut
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Mumbai: Three of the seven external members of the Reserve Bank of India’s (RBI) technical advisory committee wanted a 25 basis point (bps) cut in the repo rate while another member suggested that it be reduced by 50 bps in its monetary policy review on 24 January, minutes of the meeting released by the central bank on Friday showed.
One of the members who suggested a repo cut also wanted RBI to cut the cash reserve ratio (CRR) by 50 bps, while another wanted a 25 bps CRR cut.
CRR is the percentage of total deposits banks need to keep with RBI without earning interest.
RBI finally decided to keep the repo rate unchanged even though it slashed CRR by 50 bps to 5.5%, for the first time in two years, to release ₹ 32,000 crore into India’s cash-strapped banking system. There was also some unease over a likely CRR cut, with two of the seven external members suggesting that CRR be cut “only if necessary and that too outside the regular policy announcements".
Besides external members, deputy governors Subir Gokarn, K.C. Chakrabarty, Anand Sinha and H.R. Khan are also part of the committee.
Deepak Mohanty, Janak Raj, B.M. Misra, Pardeep Maria and Amitava Sardar are the other RBI officials on the committee. However, the central bank does not divulge views of its officials in the minutes. RBI has been releasing minutes of its technical advisory committee since February 2011.
The committee, which met on 18 January ahead of the RBI policy announcement one week later, had “divergent" views on monetary policy and liquidity measures, RBI said in a release.
“Some members felt that level of inflation expectations was high and the Reserve Bank should continue to keep monetary policy tight (at the present level). It was necessary to bring down inflation significantly from the present level even if it meant lower growth for the next few years. It would ensure that high growth was achieved in subsequent years," the release added. In January, RBI signalled that its policy stance “has now shifted to growth" and governor Subbarao explicitly said that he will start cutting rates, even though he refrained from giving a time frame. Most economists predict the first repo rate cut will come as early as April.
There were also differences on assessment of inflation, with some committee members expecting it to moderate in line with food prices and global commodities, while some others expressed concern over the persistent high inflation. “Most members felt that inflation would continue at the current levels in the near future because of the structural issues such as fiscal slippage, suppressed elements of inflation, increase in input prices due to the weakening rupee, high inflation expectations and the wage-price spiral," the RBI release said. Committee members also expressed concerns on the loose fiscal policy and suggested RBI hold rates “unless there was a clear signal of credible fiscal consolidation".
“(Some members) expressed worry at the sharp slowdown of investment activity...(that) would affect next year’s growth as well. Besides, it would also have implications for inflation, going forward. Some members, therefore, suggested that the policy focus should change from managing inflation to managing slowdown in investment," RBI said.
joel.r@livemint.com
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