RBI went by panel view on rate cut

February 23, 2013 06:10 pm | Updated November 16, 2021 10:23 pm IST - Mumbai

The Reserve Bank of India’s panel (external members) was “unanimous” in recommending a rate cut in the third quarter review of monetary policy on January 29.

“All external members were unanimous in recommending a reduction in the policy repo rate. Four of the six members suggested that the Reserve Bank should reduce the policy rate by 25 basis points,” according to the minutes of the technical advisory committee (TAC) on monetary policy which was held on January 23..

TAC includes members from the RBI as well experts from outside.

They felt that favourable global conditions as well as marginal decline in WPI inflation provide room for some monetary easing. This would also support the reform initiatives implemented by the government, it added.

“Two of these members felt that a 25 basis points reduction in the repo rate alone may not induce banks to reduce their lending rates and a cut in the cash reserve ratio (CRR) of 25 basis points to nudge the lending rates down is in order. This would also enable loan rates to reduce more than deposit rates,” the minutes noted.

Two members recommended a sharper reduction in the repo rate by 50 basis points and use of OMOs to manage liquidity. One member was of the view that a 50 basis points cut in repo rate would increase working capital loans.“This would invigorate growth and also work towards reduction in inflation.”

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