Subbarao overruled advisors to keep rates steady

MUMBAI Wed Nov 21, 2012 6:46pm IST

Duvvuri Subbarao, governor of the Reserve Bank of India speaks during an interview with Reuters at a hotel in Mexico City November 5, 2012. REUTERS/Henry Romero

Duvvuri Subbarao, governor of the Reserve Bank of India speaks during an interview with Reuters at a hotel in Mexico City November 5, 2012.

Credit: Reuters/Henry Romero

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MUMBAI (Reuters) - Reserve Bank of India Governor Duvvuri Subbarao went against the suggestion of most external members of an advisory panel to keep the key repo rate steady on October 30, minutes of the quarterly meeting released on Wednesday showed.

Of the six external members of the RBI's Technical Advisory Committee (TAC) on monetary policy who attended the meeting, five suggested a repo rate cut in the second quarter review of the monetary policy.

The committee consists of seven external members, apart from the governor and the deputy governors. The panel's role is purely advisory, with the governor having the final say in deciding rates.

The RBI left interest rates on hold, but cut the cash reserve ratio for banks, defying pressure from the government to lower rates for the first time since April. However, it indicated it may ease the policy rate in early 2013.

Of the five members who suggested a repo rate cut, three recommended a reduction by 25 basis points, while the other two suggested a sharper 50 basis points cut.

One of the members who recommended a repo rate cut of 25 basis points also suggested a 25 basis points cut in banks' cash reserve ratio, or the share of deposits they have to maintain with the central bank.

One external member felt no change in the monetary policy stance was necessary, and one could not attend the meeting.

"They felt that even though inflation is sticky, there are no demand pressures and there is a need to revive investments," the minutes said, referring to the external members.

Since February 2011, the RBI has been placing the main points of discussions of the TAC meetings in the public domain with a lag of roughly four weeks after the meeting.

The governor has however acted against the advice of the majority of the panel on most occasions, minutes showed. (Reporting by Shamik Paul; Editing by Anupama Dwivedi)

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