RBI hiked repo 50 bps; majority in panel called for just 25 bps
Reserve Bank Governor D Subbarao went by the minority view of hiking the repo rate.
Reserve Bank Governor D Subbarao went by the minority view of hiking the repo rate by 50 basis points in the Annual Policy review on May 3. Most members of the Technical Advisory Committee of the Reserve Bank of India proposed a 25 basis points hike in repo and reverse repo rates,but the RBI eventually hiked the key rates by higher-than-expected 50 bps to tame inflation.
Revealing minutes of the 24th meeting of the Technical Advisory Committee on Monetary Policy,the RBI said,while four members of the committee were of the view that the repo and reverse repo rates be raised by 25 basis points each,two members suggested 50 basis points increase each in the repo rate and the reverse repo rate.
The RBI decided to place the main points of discussion of the TAC meeting in public domain with a lag of roughly four weeks after its meeting. This was started with placing the minutes of the 23rd TAC meeting held on January 19,2011 which were placed in public domain on February 22.
In addition to increase in the policy rates by 25 basis points each,one member was of the view that the statutory liquidity ratio SLR could be increased by 100 basis points and the repo facility of the Reserve Bank be limited up to 2 per cent of excess SLR securities held by banks. A member also felt that the Reserve Bank could consider certain controls,if capital inflows became excessive, the RBI said.
Though TAC views are advisory in nature,they are taken into account by the central bank. The apex bank was hitherto,till 2010,known for its closed-door meetings and secret deliberations when it comes to banking operations,forex management and rupee movement.
Apart from Subbarao who chaired the TAC meeting,other members present were: Subir Gokarn,vice-chairman,Shyamala Gopinath,KC Chakrabarty,Anand Sinha,YH Malegam,Sanjay Labroo,Dilip M Nachane,A Vasudevan and Sudipto Mundle. Samir K Barua could not attend the meeting but submitted his written views. Shankar Acharya could not attend the meeting. Deepak Mohanty,Janak Raj,BM Misra, Pardeep Maria and Amitava Sardar also participated in the deliberations.
The committee also reviewed the global and domestic macroeconomic developments. It felt that the global recovery was on the track. However,several weaknesses,such as high unemployment rate in the US and euro area,weak US housing market and sovereign debt problems in the euro area,continued to persist.
It expressed concerns over rising global commodity prices,especially crude,and felt that elevated level of global commodity prices was a major risk to both global growth and global inflation, the RBI said.
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