Four of the five external advisers to the Reserve Bank were in favour of status quo on key policy and Governor Raghuram Rajan went along with their suggestion to keep interest rates unchanged on February 2.
"For the sixth bi-monthly monetary policy, four of the five Members recommended status quo...The fifth Member recommended a policy repo rate reduction by 50 basis points," the minutes of the Technical Advisory Committee (TAC) released by the RBI said.
The four members wanted status quo since all measures of inflation have increased and the impact of implementing the pay commission recommendations on the evolution of headline and core inflation in the medium term needs to be watched.
They said while the fall in commodity prices convey a weak global economy, high services inflation remains a concern and inflationary expectations continue to show inertia and are elevated.
The four TAC members opined the real policy rate is slightly below the neutral rate suggesting that policy is currently accommodative, rather than neutral.
Further, while industry continues to underperform, which along with the fall in external demand justifies 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".
One of the members was of the view that given the continuing weakness in the domestic economic recovery and the growing signs of further weakness in the international economy, consideration may be given to 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, the Member said.
RBI said consultation with external Members of the TAC on monetary policy was held electronically during January 19-22 in the run up to the Sixth Bi-monthly Monetary Policy Review announced on February 2.
On domestic growth, the TAC Members were of the view that the economy has stabilised, and appears to be on a path of a modest recovery.
While the November IIP collapse suggests a slowing down of economic activity, a smoothed average over October-November suggests a slow but gradual revival in economic activity, the Members said. However, the pace of recovery is constrained by problems in both the banking and infrastructure sectors.
On February 2, Rajan had left the key policy rate (repo rate) unchanged but indicated at accommodative stance saying with "inflation moving closer to the target" there would be more room for rate cut to support growth.
