Untouched repo rate reveals Subbarao stood by TAC opinion
The Reserve Bank of India (RBI) governor D Subbarao stood with the majority opinion of the Technical Advisory Committee (TAC) and refrained from tweaking the policy (repo) rate in the first quarter (April-June) of the monetary policy review announced on July 30.
August 22, 2013 / 08:52 IST
Moneycontrol Bureau
The Reserve Bank of India (RBI) governor D Subbarao stood with the majority opinion of the Technical Advisory Committee (TAC) and refrained from tweaking the policy (repo) rate in the first quarter (April-June) of the monetary policy review announced on July 30."Four of the seven members recommended maintenance of status quo in the policy repo rate. In their view, though growth and inflation are projected to move down, we still have to guard against high inflation expectations that can destabilize the momentum of the economy," RBI said in a release."Moreover, the external front is fragile and warrants that we do not do anything that can send wrong signals about our discounting the possibility of capital outflows. Of these, one Member was not in favour of any change to the policy rate till the operational architecture, through which monetary policy is steered, goes back to a symmetric corridor within the standing facilities that provides a small window within which overnight rates move."Must read: RBI issues fresh measures to bail out banks, mkts to rallyThe repo rate at which banks borrow money from the RBI stands at 7.25 percent and the cash reserve ratio, the amount of total deposits banks park with RBI, is at 4 percent.However, two members recommended a reduction in the policy repo rate by 0.25 percent to improve sentiment and show sensitivity to growth, it said.At the same time, one member recommended a repo rate increase by 25 basis points (bps) given the expectation of higher volatility in the exchange rate in the second half of 2013, it added.The meeting of TAC on monetary policy was held on July 24, in the run up to the first quarter review of the policy. The meeting, chaired by Subbarao, was attended by external members Y H Malegam, Indira Rajaraman, Arvind
Virmani, Ashima Goyal and Chetan Ghate. Shankar Acharya and Errol D'Souza, who could not attend the meeting, submitted their written views. RBI said members were of the view that the global economy
remained subdued. Most Members felt that while quantitative easing (QE) in
the US cannot continue forever, its withdrawal could well be
slow, it said.
In the euro area, it said, the European Central Bank has stressed on its commitment to keep interest rates low for an extended period of time. Only Germany has marginally managed to avert recession. On growth, it said, assessment of members was that domestic activity has slowed down and industrial production is weak. The confidence level of investors has worsened and most investment plans have been kept on hold, RBI said, adding that
even though firms are cash rich and liquidity is adequate, they are not taking any investment decisions.Regarding inflation, members were of the view that though
the monsoon has been good, inflation facing consumers is still
high, it said. Food prices are still elevated and the food security bill
will aggravate food price inflation as it will tilt supplyWith inputs from PTI Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
