External members suggested pause to Rajan

Four of the five outside members of the technical advisory committee on monetary policy advised Reserve Bank of India (RBI) Governor Raghuram Rajan to pause on rate cuts in the sixth bi-monthly monetary policy on February 2, edited minutes released on Monday revealed. Rajan kept policy rates unchanged ahead of the Union Budget on February 29.

The remaining member of the committee, which is a voluntary advisory, suggested a 50-basis point cut citing continuing weakness in the domestic economic recovery.

One of the outside members said the central bank could consider an out-of-cycle policy rate reduction, synchronised with the Union Budget.

"Such synchronisation could have salutary 'confidence effects' on the flagging domestic private investment," RBI's minutes quoting the suggestions said. The suggestions were communicated electronically to the RBI governor.

The members suggesting pause suggested that while inflation had increased, the impact of implementing the Pay Commission recommendations on the evolution of inflation in the medium term needed to be watched. Even as commodity prices have fallen globally, high services inflation remained a concern while inflationary expectations were elevated.

While an underperforming industry and falling external demand justified taking some measures to stimulate domestic demand, "it may be worthwhile to assess supply-side measures and fiscal consolidation efforts outlined in the Budget before making a move to cut policy rates," the members said.  

They adding a real policy rate of below the neutral three per cent rate suggested that the policy was currently accommodative, rather than neutral.

The external members on the committee are Shankar Acharya, Arvind Virmani, Errol D'Souza, Ashima Goyal, and Chetan Ghate.