RBI Governor D Subbarao defied jury again to raise rates

MUMBAI: The Reserve Bank of India governor D Subbarao once again overruled the jury's call for a rate pause in its pre-credit policy meeting held on October 19, and went ahead and raised key policy rates.

With the exception of one external member of the technical advisory committee on monetary policy, all other five external members called for a pause in rate hikes, according to the minutes of the meeting released by the Reserve Bank of India, while only one external member suggested that the central bank raise repo rates by 25 basis points, or bps (one bps is 0.01%).

The RBI, it may be recalled, has raised the key policy rates by 25 bps for the thirteenth time to rein in inflationary expectations. Inflation has remained much above the central bank's comfort zone at over 9% for almost eleven months now. Amid fears of an imminent slowdown in the economy, many economists and corporates had made a case for a pause in rate hike as high interest rates were hurting growth.

The governor also did not factor in many other suggestions by external members of the committee. One external member suggested an increase in the statutory liquidity ratio by 25 bps, so that the borrowing by banks under the central bank's liquidity adjustment facility was curtailed. The member further recommended that the provisioning for standard assets could be relooked to promote investments.

Another external member suggested a nominal exchange rate apprecia ion to reduce the cost pressure on the economy. Some members, while suggesting for a pause, felt that the message of the RBI's policy should be hawkish.