NEWS & ADVICE : HOME LOANS
RBI’s financial advisors supported Subbarao’s decision to leave key policy rates unchanged
By Joseph Samson
Aug 23, 2012
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Governor of Reserve bank of India, D. Subbarao left the key policy rates unchanged last month in the quarterly policy review. Minutes of the meeting held for the policy review show that Subbarao's call to keep the policy rates steady was supported by five of the seven external advisors on RBI's advisory panel.

In the quarterly policy review for the quarter ending July 31, the repo rate was kept unchanged at 8 percent. The minutes of the meeting reported, "They felt that given the fiscal dominance, double digit consumer price inflation and no realistic expectation of credible action from the government, the Reserve Bank needs to focus on tempering inflation expectations."

It is reported that in a meeting of technical advisory committee on monetary policy (TAC), held on July 25, five members had advised Subbarao that key policy rates like the repo rate should be kept consistent.

One of the five members proposed that either the Cash reserve ratio (CRR) should be reduced by 25 basis points or the central bank's bond purchase program should be promoted more actively so that it can provide adequate liquidity to the system. Another member proposed that as the CRR is quite low already, the bond purchase program must be pushed more aggressively. Other members reportedly suggested a reduction in CRR by 25 basis points, explaining that this step could encourage investment.


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