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Journalism of Courage
Reserve Bank of India (RBI) Governor D Subbarao overruled the advice of a majority of external members of its Technical Advisory Committee (TAC) by keeping the repo rate steady at the monetary policy review in January.
Three external members suggested that the policy repo rate be reduced by 25 basis points,while one member suggested that it be reduced by 50 basis points from 8.50 per cent. Of these,one member also suggested reduction in the cash reserve ratio (CRR) by 50 basis points and another by 25 basis points, minutes of the TAC meeting released by the RBI showed.
According to the RBI,two other members did not suggest any change in the CRR. The other three members did not recommend any change in the repo rate. Of these,one member suggested reduction in the CRR by 25 basis points,while two others suggested that the cash reserve ratio or CRR be changed only if necessary,and that too outside the regular policy announcements,it said.
The meeting of TAC which is advisory in nature and has no voting powers was chaired by Subbarao. Apart from three Deputy Governors,external members YH Malegam,Prof Indira Rajaraman,Dr Shankar Acharya,Dr Rakesh Mohan,Prof Sudipto Mundle,Prof Errol DSouza and Prof Ashima Goyal were present. The RBI reduced the CRR by 50 bps to 5.50 per cent in the January review.
All the members of the committee expressed serious concerns over the evolving fiscal situation. Fiscal deficit target in 2011-12 was likely to slip significantly. Some members felt that the fiscal pressure would continue beyond 2011-12 as the monetary impact of entitlements such as Mahatma Gandhi National Rural Employment Guarantee Act,oil,fertiliser and food subsidies would be significant. Some members felt that unless there was a clear signal of credible fiscal consolidation,the RBI should hold back the policy rate reversal, the RBI said.
