RBI went ahead with repo cut after advisory panelís unanimous view
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The Reserve Bank of India (RBI) went with the proposal of external members of the its Technical Advisory Committee on Monetary Policy (TAC) when it announced a 25 basis points (bps) reduction in the repo rate in the monetary policy on January 29.
Minutes of the TAC meeting held six days before the policy review revealed †that all external members were unanimous in recommending a reduction in the policy repo rate. Four of the six members suggested that the RBI should reduce the policy rate by 25 bps.
The RBI said two of the TAC members felt that a 25 bps reduction in the repo rate alone may not induce banks to reduce their lending rates and a cut in the CRR of 25 bps to nudge the lending rates down would be in order.
This would also enable loan rates to reduce more than deposit rates. One members felt that the central bank should make use of open market operations (OMOs) to manage liquidity and keep the CRR unchanged and another advocated a sharper repo rate cut of 50 bps to increase working capital loans.
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