RBI raised rate despite opposition from external experts

The RBI went ahead with 0.25 percentage point hike in key policy rate, despite majority of external experts advising the central bank against it amid concerns that tight monetary policy had failed to moderate inflation.

"On monetary measures, while one external member suggested an increase in repo rate by 25 basis points, other five external members were of the view that repo rate should not be changed," said minutes of October 19 meeting of RBI's Technical Advisory Committee (TAC) on Monetary Policy.

However, in the second quarter review of the monetary policy for the current fiscal, announced on October 25, the RBI increased the repo rate in its bid to tame inflation. It was the 13th increase since March 2010.

Besides top RBI officials, the TAC comprise external members, including Hangar Acharya, Rakesh Mohan and Errol D'Souza.

While the RBI hiked interest rate, it has indicated that another increase may not happen in December policy.

As per the minutes, some others had suggested for a pause in hike in further hike in interest rates, but opined that the message of the Reserve Bank's policy should be hawkish.

The TAC, which is advisory in nature, is headed by RBI Governor D Subbarao.

 All members of the committee observed that inflation was a major concern, they said it would not ease immediately.

"... Some other members felt that inflation was driven by external/supply side factors and, therefore, the monetary policy tightening was impacting investment and growth and not inflation," the minutes said.

The members, however, hoped in view of slowing global economy, the international commodity prices would soften gradually and help in moderate inflation.

Amidst global developments, the TAC members also observed the economic growth in the country was moderating.

In particular, investment activity was slowing down due to tight monetary policy and other factors, including global uncertainty and delay in clearing the projects, they felt.

RBI has lowered its GDP projection for the current fiscal to 7.6% from 8%.

The minutes further said that some members raised concerns over the high fiscal deficit and the risk of it slipping in the current financial year.