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Majority of the members of the Reserve Bank of India’s technical advisory committee (TAC) on monetary policy said the repo rate in its first bi-monthly review should be reduced, said the minutes of a TAC meeting, released on Wednesday.
However, RBI decided to keep interest rates unchanged, view of the other three members of the seven-member panel.
TAC typically meets a week before the policy announcement, while the minutes of the meeting is released with a 3-4 week lag. RBI met to review the policy on April 7.
“On policy action, four members recommended reduction in the policy repo rate. Of them, two members suggested a 50 basis points cut along with forward guidance of no further decline. According to these two members, the current monetary policy stance was tight, causing deceleration in real private consumption demand,” the minutes said.
RBI has reduced interest rates twice since January by 50 bps to which banks were yet to respond till the first bi-monthly policy review, which prompted the central bank to hold rates. The three members who were against a rate cut cited lack of monetary as a reason for status quo.
“Three Members recommended no change in the policy repo rate. They were of the view that until the two 25 basis points cuts in the repo rate, in January and March 2015 are transmitted into lending rates, no further cut is desirable. The third cut in the interest rate may wait at least till August after the monsoon impact is known,” it said.
On the external front, the members expressed concerns about the near-term external outlook as merchandise export growth had been declining for three months in a row and vulnerability in the medium-term was arising from swings in capital inflows in both debt and equity markets.
Members felt that though stability of the rupee may be beneficial, the present level of the exchange rate is not attractive and the rupee should be allowed to depreciate.
“Since the rupee has appreciated significantly against the euro, India’s share of exports in the Euro area may have fallen relative to South Asian countries where currencies have remained fairly stable”, it said.
The other issue that was deliberated at great length was the revised GDP series that estimated real growth in 2014-15 at 7.5 per cent.
Most of the members concurred that it was a challenge to understand the growth momentum under the revised series as all other indicators being tracked by analysts do not show that promising level of activity.
However, RBI decided to keep interest rates unchanged, view of the other three members of the seven-member panel.
TAC typically meets a week before the policy announcement, while the minutes of the meeting is released with a 3-4 week lag. RBI met to review the policy on April 7.
“On policy action, four members recommended reduction in the policy repo rate. Of them, two members suggested a 50 basis points cut along with forward guidance of no further decline. According to these two members, the current monetary policy stance was tight, causing deceleration in real private consumption demand,” the minutes said.
RBI has reduced interest rates twice since January by 50 bps to which banks were yet to respond till the first bi-monthly policy review, which prompted the central bank to hold rates. The three members who were against a rate cut cited lack of monetary as a reason for status quo.
“Three Members recommended no change in the policy repo rate. They were of the view that until the two 25 basis points cuts in the repo rate, in January and March 2015 are transmitted into lending rates, no further cut is desirable. The third cut in the interest rate may wait at least till August after the monsoon impact is known,” it said.
On the external front, the members expressed concerns about the near-term external outlook as merchandise export growth had been declining for three months in a row and vulnerability in the medium-term was arising from swings in capital inflows in both debt and equity markets.
Members felt that though stability of the rupee may be beneficial, the present level of the exchange rate is not attractive and the rupee should be allowed to depreciate.
“Since the rupee has appreciated significantly against the euro, India’s share of exports in the Euro area may have fallen relative to South Asian countries where currencies have remained fairly stable”, it said.
The other issue that was deliberated at great length was the revised GDP series that estimated real growth in 2014-15 at 7.5 per cent.
Most of the members concurred that it was a challenge to understand the growth momentum under the revised series as all other indicators being tracked by analysts do not show that promising level of activity.
