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Majority of experts on RBI panel were for status-quo in rates

Last Updated: Thursday, May 23, 2013 - 21:06

Mumbai: The Reserve Bank today said majority of external members on its advisory panel were not in favour of easing interest rate, though it went ahead with a 0.25 per cent cut while announcing 2013-14 annual monetary policy earlier this month.

The "four Members (of the total seven) recommended that the policy repo rates be left unchanged....(in their assessment) reducing the repo rate may not help revive growth, since low growth reflects impediments to investment projects through power/fuel/supply linkages," said minutes of meeting of the Technical Advisory Committee on Monetary Policy.

They suggested that the RBI may wait for at least one quarter to gauge the evolving macroeconomic situation.

The Committee had met in the run up to the annual Monetary Policy 2013-14 announced on May 3 in which the RBI reduced the repo rate by 0.25 basis points to 7.25 per cent, amid demand of monetary policy easing.

However, three Members had recommended a reduction in the policy repo rate by 25 basis points and two also suggested cut in the cash reserve ratio (CRR) by a quarter percentage point.

The RBI said that in the assessment of members who favoured status-quo in policy rates, the global situation is weak, the fiscal situation does not provide much comfort and the CAD could remain on a high trajectory.

"Given the range of factors underlying the slowdown in growth and investment, investment at this stage may not be sensitive to interest rate changes," they felt.

They said that though the repo rate has been reduced by 100 basis points in 2012-13, lending rates have not gone down commensurately to activate investment.

External Members in the meeting were Y H Malegam, Indira Rajaraman, Shankar Acharya, Errol D'Souza, Ashima Goyal, Arvind Virmani and Chetan Ghate.

On the fiscal front, the external members felt that the high fiscal deficit continues to be a major concern.

Their opinion was that "although the government has made a firm commitment to fiscal consolidation, it is an election year and it may not be easy for the government to raise administered prices (of petroleum products) closer to the election".

Some Members, on the other hand, were of the opinion that the government may meet the target for the gross fiscal deficit to avoid a rating downgrade.


First Published: Thursday, May 23, 2013 - 21:06
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