Raghuram Rajan went with majority in August policy review

Governor Raghuram Rajan toed the line of majority members of the Technical Advisory Committee (TAC) in holding rates in his last monetary policy review though one of them suggested half a point cut because the members believed that inflation had become sticky and the implementation of GST posed risk, minutes of the TAC showed.

The Reserve Bank had kept key policy rate unchanged at 6.5 per cent in its August policy statement.

Though food prices had increased over the past few months, it has not become generalised was the consensus of the TAC. Members took comfort in the fact that there has been a marginal reduction in CPI inflation, excluding food and fuel. They felt increased upside risks to the 5 per cent inflation target in Q4 of 2016-17 remain.

They expect consumption demand to rise due to the seventh pay commission payouts and also do not rule out cost-push shocks in the form of a steady rise in crude prices. The central bank releases the minutes of the meeting with a lag.

Four of the five members who communicated their recommendation electronically had suggested a status-quo in rates. They were of the view that CPI and CPI-food inflation have seen a recent uptick and certain other price indicators continued to be sticky.

Besides, elevated food inflation has second round effects on headline inflation if it persisted above double digits.Though industrial growth remained weak, the improvement in liquidity conditions should help banks pass through past policy rate cuts.