Subbarao agreed with minority of advisors, show minutes

RBI had cut the repo rate by 25 basis points on May 3 and now it stands at 7.25%

In the annual Monetary Policy 2013-14 meeting on May 3, Reserve Bank of India (RBI) Governor D Subbarao had decided to go with the views of the minority members in the Technical Advisory Committee (TAC), say the minutes of its April 25 meeting.

“On monetary policy measures, three of the seven external members recommended a reduction in the policy repo rate by 25 basis points (bps). These members felt while Wholesale Price Index (WPI) inflation is declining and inflation expectations have softened modestly, aggregate demand is weak, output growth is low and industry is underperforming,” said the minutes, issued by RBI today.

RBI had cut the repo rate by 25 bps on May 3 and it is now 7.25 per cent.

Two of these three members were also in favour of a Cash Reserve Ratio (CRR) cut by 25 bps to facilitate transmission of the rate cut to bank lending rates. The third member suggested a cut in the Statutory Liquidity Ratio (SLR). This, in combination with open market operations (OMOs), would improve liquidity and availability of credit to productive sectors, it was felt.

However, the other four members recommended that the policy repo rates be left unchanged. “In their assessment, the global situation is weak, the fiscal situation does not provide much comfort and the current account deficit (CAD) could remain on a high trajectory,” said the minutes.

The meeting was chaired by Subbarao. The other internal members present were the four deputy governors — Urjit Patel, K C Chakrabarty, Anand Sinha and H R Khan. RBI officers Deepak Mohanty, Michael D Patra, B M Misra, B K Bhoi and Pardeep Maria also attended. External members were Y H Malegam, Indira Rajaraman, Shankar Acharya, Errol D’Souza, Ashima Goyal, Arvind Virmani and Chetan Ghate.  Most members felt the global economy was weaker than before. On the domestic front, most felt overall demand was weak.

Also, that while both core and headline WPI inflation had fallen, Consumer Price Index (CPI) inflation remained elevated. They felt the high fiscal deficit continued to be a major concern. Although the government had made a firm commitment on fiscal consolidation, it is an election year and it might not be easy for the government to raise administered prices closer to the polls.

On the balance of payments (BoP), members felt with high oil and gold imports, the CAD to gross domestic product ratio, which touched historically high levels in 2012-13, might take some time to correct to a sustainable level of 2.5-3 per cent.