Most of the Reserve Bank of India's external advisors supported Governor Duvvuri Subbarao's decision to keep interest rates steady last month, in stark contrast to their opposition to the bank's surprise sharp cut in rates in April.
Minutes from the quarterly review of policy released by the central bank on Tuesday showed five of the seven external members of the governor's advisory committee had favoured keeping rates on hold.
Subbarao, who makes the final decision on rates himself, left the repo rate unchanged at 8 percent on July 31, showing that bringing down stubbornly high inflation is its top priority even as economic conditions deteriorate.
Four deputy governors also vote at the meeting of the body, which has no formal power, but their votes are not published.
In April, Subbarao cut rates by an unexpectedly sharp 50 basis points, though most of the external members had suggested rates be held steady.
Five external members of the technical advisory committee on monetary policy (TAC) who attended a meeting on July 25 ahead of the decision suggested the RBI should not change the key repo rate.
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"They felt that given the fiscal dominance, double digit consumer price inflation and no realistic expectation of credible action from the government, the Reserve Bank needs to focus on tempering inflation expectations," the minutes said.
Of these five members, one suggested either banks' cash reserve ratio (CRR), or the proportion of deposits they have to maintain with the central bank be cut by 25 basis points, or the RBI's bond purchase programme be made more active to provide adequate liquidity.
Another member suggested the CRR is already low, and a more aggressive bond purchase programme be used to improve liquidity in the banking system.
The remaining two external members suggested there be a symbolic cut in the repo rate by 25 basis points to stimulate investment. One of them also suggested a reduction in the CRR by 25 basis points.
SPILL OVER
The central bank started releasing the minutes of its quarterly technical advisory committee meeting from February 2011.
The members of the committee felt global growth is likely to slow further, and inflationary pressures could spill over to metal, oil and other commodities if there is further extraordinary easing of monetary policy in the U.S. or Europe.
They also felt the Indian economy is in a bind with slackening growth and elevated inflation, and that the remedies lie with the government.
The RBI has repeatedly said New Delhi must take measures to narrow the fiscal deficit, and policy easing will depend, among other factors, on the government's effort at fiscal consolidation.
Many of the members present at the meeting felt there could be a slippage in the fiscal deficit in the current financial ending in March 2013.
In March, the government had budgeted a fiscal deficit of 5.14 trillion rupees or 5.1 percent of gross domestic product (GDP) for the current fiscal year.