Reserve Bank of India (RBI) Governor Raghuram Rajan went against majority view in the apex bank’s technical advisory committee (TAC) while announcing a surprise 0.25 percent hike in key rates in the January 28 policy review, as per the minutes of an internal meeting which were disclosed on Monday.
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Only two members called for a hike in interest rates citing the pressures on inflation, while one asked for the key repo rate to be cut to accommodate concerns on growth while a majority four members asked for a status quo during the meeting on January 20.
The ones who were for a rate hike said it will be consistent with the guidance given by the RBI.
“To address the elevated levels of inflation expectations, the Reserve Bank should not wait for stability in the political situation to emerge; they recommended that the policy rate be increased in the upcoming policy review,” the minutes said, quoting the two members who sought a hike.
Apart from Rajan, his deputies, KC Chakrabarty and HR Khan, and external members, Y H Malegam, Indira Rajaraman, Shankar Acharya, Arvind Virmani, Ashima Goyal, Errol D’Souza and Chetan Ghate, were present at the TAC meeting.
Rajan announced a 0.25 percent hike in the key rates at the third quarter review on January 28, when everybody was expecting a status quo as the inflation numbers had eased.
RBI Governors, including Rajan’s predecessor, D Subbarao, are known to act against the majority view at TAC meetings.
The solitary member who asked for a cut said the inflation is high because of the Government's aggressive push, and a cut will demonstrate that RBI is concerned about growth.
Most members were concerned about the inflation, while “some” said the high price rise is not exclusive to India, emerging markets like Brazil and Turkey are facing it too. The domestic economic situation was assessed as “weak” by the members with no signs of green-shoots. Additionally, with the government cutting its expenditure, they felt that the already frail GDP growth would fall further.
On the external front, all the members said that the global growth is showing signs of recovery but sounded wary of uncertainty about the Federal Reserve’s tapering of its economic stimulus programme.
On the currency front, some felt that the market has already priced-in the developments and expected calm in the foreign exchange markets in the absence of external shocks.
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