Most on RBI panel favoured rate hike

Mumbai: The Reserve Bank of India (RBI) went with the majority view of the external members of its technical advisory committee when it raised the repurchase or repo rate by a quarter percentage point in its monetary policy review on 29 October, minutes of the committee meeting released on Thursday showed. 

RBI had increased its repo rate, or the rate at which it lends to banks, by 25 basis points (bps) to 7.75% in its second quarter monetary policy review on 29 October as its concerns on persistently high inflation outweighed worries about slowing economic growth. One bps is 0.01 percentage point.

The minutes showed that all seven external members of the committee were “unanimous” in wanting to restore the policy corridor between the so-called marginal standing facility (MSF) and the repo rate at 100 basis points above the policy repo rate. MSF rate currently stands at 8.75%. The meeting was held on 23 October.  

Along with hiking the repo rate the central bank lowered the interest rate at which it lends emergency funds to banks through the MSF by 25 bps to ease liquidity in the banking system.

Y.H. Malegam, Indira Rajaraman, Shankar Acharya, Arvind Virmani, Ashima Goyal, Errol D’Souza and Chetan Ghate are the seven external members in the technical advisory committee.

Expressing concerns on inflation as also on the external front, four members supported raising the repo rate by 25 basis points while bringing down the MSF rate by the same amount. One of these members also recommended an increase in access to the LAF (liquidity adjustment facility) window through overnight repos to 0.6-0.7% of banks’ net demand and time liabilities (NDTL) to reduce the overall cost of borrowing for banks,” RBI said in a late evening release.

Ranjay kumar

PGDM,1st Year.