Rajan went ahead with TAC view on interest rate

Business

oi-Staff

By Super

Published: Saturday, April 26, 2014, 9:29 [IST]

Mumbai: Reserve Bank Governor Raghuram Rajan went ahead with suggestions of his advisory panel members, who had unanimously pitched for keeping policy rates unchanged in April 1 review in view of high inflation and political and economic uncertainty.

"On policy action, all members unanimously recommended that status quo be maintained in the policy. Members listed upside risks to headline inflation in the near term which provide the rationale for a pause: high order of political and economic uncertainty engendered by the forthcoming national elections," said the minutes of the meeting of the Technical Advisory Committee (TAC) on Monetary Policy released by the Reserve Bank of India (RBI).

RBI had left short-term lending rate or repo rate unchanged at 8 percent and cash reserve ratio also remained unchanged at 4 percent on April 1.

The TAC, which met on March 26, advises the RBI on the policy rates though the final decision is taken by the Governor himself. The meeting was chaired by Rajan. The TAC external members, who attended the meeting include Indira Rajaraman, Arvind Virmani, Ashima Goyal, Errol D'Souza and Chetan Ghate.

Members favored that the RBI's focus should be on building foreign reserves in order to manage risks related with capital outflows, the minutes said.

One member also recommended lowering of statutory liquidity ratio (SLR) to 22 percent of the net demand and time liabilities so that transmission of monetary policy signals could be improved.

As per the minutes, members were of the view that "forward guidance" should be aimed at maintaining interest rate stability in keeping with the challenges to deal capital outflows and supply shocks, while one member suggested that forward guidance was important to anchor inflationary expectations.

Referring to external sector, some members recognised that risk of current account deficit in the face of sluggish financial savings could not be ignored.

The TAC also opined risk of capital outflows were there for the medium term and were likely to materialise if the US Fedearl Reserve were to raise interest rates earlier than anticipated.

PTI