 "Experts had advised RBI not to hike rates to fight inflation")
**Mumbai:**Almost all external experts on theReserve Banks’ monetary policy advisory committee were opposedto increase in policy rates to combat inflation amid concernsthat tight policy had proved ineffective in moderating pricerise.
“On monetary measures, while one external membersuggested an increase in repo rate by 25 basis points, otherfive external members were of the view that repo rate shouldnot be changed,” said minutes of 19 October meeting of RBI’s
Technical Advisory Committee (TAC) on Monetary Policy.
[caption id=“attachment_133580” align=“alignleft” width=“380” caption=“Minutes of the 19 October meeting reveal that almost all external experts on RBI monetary policy advisory committee waere opposed to increase in policy rates to combat inflation.Reuters”]
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Six days later, the central bank increased the repo rateby 25 basis points in its bid to tame inflation. It was the13th increase since March 2010.
While all members of the committee chaired by RBIGovernor D Subbarao observed that inflation was a majorconcern, they said it would not ease immediately."… some other members felt that inflation was driven byexternal/supply side factors and, therefore, the monetarypolicy tightening was impacting investment and growth and notinflation," the minutes said.
Besides top RBI officials, the TAC comprise externalmembers, including Hangar Acharya, Rakesh Mohan and ErrolD’Souza.
The members, however, hoped in view of slowing globaleconomy, the international commodity prices would softengradually and help moderate inflation.Some others, while suggesting for a pause in hike infurther hike in interest rates, felt that the message of theReserve Bank’s policy should be hawkish.
In its second quarter mid-quarter review of the monetarypolicy for the current fiscal, RBI indicated that it may notincrease the key policy rates in December.
Amid global developments, the TAC members also observedthe economic growth in the country was moderating. In particular, investment activity was slowing down dueto tight monetary policy and other factors, including globaluncertainty and delay in clearing the projects, they felt.RBI has lowered its GDP projection for the current fiscalto 7.6 percent from 8 percent.
A concern was also expressed during the TAC meet on theservice sector, which was showing signs of moderation. Somemembers felt that exports growth will slow down, goingforward, as a result of which trade deficit may widen, the
central bank said.
The minutes further said that some members raisedconcerns over the high fiscal deficit and the risk of itslipping in the current financial year.
PTI