Reserve Bank of India governor D Subbarao went against majority opinion again and kept the repo rate and cash reserve ratio unchanged at the second quarter policy review in October, according to minutes of the meeting of the technical advisory committee (TAC).
Five out of the six external members of the TAC voted for reduction in the repo rate, the RBI said. Out of the five, two voted for a sharper reduction of 50 basis points. All members felt that policy rates must be slashed because despite sticky inflation, there is no demand pressure and investment needs to be stimulated.
One member recommended cutting the repo rate and CRR by 25 bps each. “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 release said.
Most members said the domestic economic situation is challenging and expect significant slowdown in growth. Members were also of the view that inflation may remain sticky and demand pressures may revive due to higher wages across sectors. “They suspected that wage inflation might go up further and this is the last chance for the Reserve Bank to anchor inflation expectations,” the release said.
On the fiscal situation, members felt that fiscal pressures would continue notwithstanding recent measures by the government towards fiscal consolidation.
The committee consists of six external members in addition to the governor and deputy governors of the RBI. The TAC meets ahead of every policy review. The six external members are former deputy governors Y.H. Malegam and Dr. Rakesh Mohan , academecians Indira Rajaraman, Sudipto Mundle, Errol D’Souza, Ashima Goyal, and Dr. Shankar Acharya.