MUMBAI: Four of the seven external board members in RBI’s technical advisory committee on monetary policy favoured a cut in its repo rate, at its review on September 30.
Three of the four members favoured a 25 basis points cut, while one wanted a 50 basis points cut in RBI’s repo rate, according to the minutes of the meeting released by the RBI on Wednesday. The remaining three of the seven external members favoured no change in policy rates.
External members present at the meeting were Y H Malegam, Shankar Acharya, Arvind Virmani, Indira Rajaraman, Errol D’Souza, Ashima Goyal and Chetan Ghate. The meeting was chaired by RBI Governor Raghuram Rajan, and the four deputy governors were also present.
These members argued that since industrial demand was stagnating, RBI could give greater attention towards weak demand and high levels of unemployment while fighting inflation.
With the decline in headline CPI inflation, the real policy rate has become positive. Positive real rates were required by the Reserve Bank to meet its 6 per cent target by January 2016. If inflation reduces further, the real policy rate will keep on increasing, the member said.
On the domestic front, the external members noted that while market sentiment has improved, economic activity continues to be weak and there is disconnect between corporate sector activity and buoyancy in the capital market. Industrial activity has slumped after some initial gain, stalled projects are yet to be brought back on-stream, and there is no pick-up in investment as companies are risk averse and services sector growth outlook is unclear with mixed signals.