Subbarao: the only dove among hawks?

Next time you blame RBI governor D Subbarao for not cutting bank rates and almost withholding the growth of the country, you might have to think twice. Subbarao went against the majority view of the external members on the central bank’s technical advisory committee (TAC) when he cut policy rates by 50 bps (100 bps=1 percent) on 17 April.

According to the minutes of the TAC meeting, four out of six members in the committee thought that interest rates should be left unchanged. Business Line reports say one member suggested that the cash reserve ratio (CRR) be reduced by 50 basis points. Two other members suggested a reduction in policy rates by 25 basis points while another suggested a reduction in the CRR by 50 basis points.

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Other than Subbarao, the meeting was attended by Dr Subir Gokarn, Dr KC Chakrabarty, Anand Sinha, HR Khan; and external members, Dr Shankar Acharya, Dr Rakesh Mohan, Indira Rajaraman, Sudipto Mundle, Errol D’Souza and Ashima Goyal.

Most members recommended heightened vigilance and wanted the rupee to be allowed to depreciate. “The high twin deficits (current account and fiscal), combined with persistently high inflation for about two years, have made the economy more vulnerable to external shocks. It was underscored that the Reserve Bank should assign more weight to preserving external stability,” the minutes said.

However, today rupee opened at 54.05 against the US dollar, inching closer to its all time low of 54.30 /dollar though it soon recovered to 53.74 after suspected RBI intervention.

See the Business Line reports here :