Governor Raghuram Rajan went along with the recommendation of majority of the members of the Reserve Bank of India’s panel on monetary policy by going in for a policy repo rate cut in the fourth bi-monthly policy review on September 29.

The RBI had cut the repo rate (the interest rate at which it provides liquidity to banks to overcome short-term liquidity mismatches) by a more than expected 50 basis points from 7.25 per cent to 6.75 per cent in the fourth bi-monthly policy review.

According to the minutes of the meeting of the technical advisory committee (TAC) on monetary policy, six members recommended reduction in the policy repo rate — two suggesting a reduction of 50 basis points (bps), one being flexible within the range of 25 to 50 bps, while three wanted to move cautiously with a reduction of 25 bps. One member recommended status quo on the policy rate.

The three members who recommended a reduction of the policy rate greater than 25 bps were of the view that during the pre-crisis period, corporate performance was the key driver of growth and going forward, recovery of the industrial sector would be critical for achieving a growth rate of 8.5 per cent.

However, the growth of industrial production is tepid at present, real interest rates faced by corporates have increased sharply and the rise in the real interest rate has more than offset the positive effects of the decline in commodity prices.

The TAC meeting was chaired by Raghuram Rajan, Governor. Internal members Urjit R Patel (Vice-Chairman), HR Khan, and SS Mundra, Deputy Governors; and external Members YH Malegam, Shankar Acharya, Arvind Virmani, Indira Rajaraman, Errol D’ Souza, Ashima Goyal, and Chetan Ghate were present at the meeting.

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