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Minutes of the April 27, 2011 Meeting of the Technical Advisory Committee on Monetary Policy

May 30, 2011‐ Mumbai, Maharashtra, India

The Reserve Bank of India today released on its site the minutes of the twenty-fourth meeting of the Technical Advisory Committee (TAC) on Monetary Policy. The meeting was held on April 27, 2011 in the run up to the annual Monetary Policy Statement 2011-12 announced on May 3, 2011. The main points of discussion of this meeting are set out below.

The Committee reviewed the global and domestic macroeconomic developments. It felt that the global recovery was on the track. However, several weaknesses, such as high unemployment rate in the US and euro area, weak US housing market and sovereign debt problems in the euro area, continued to persist. The Committee noted with concern the rising inflationary pressures in advanced economies and emerging market economies (EMEs). The Committee, in particular, expressed concerns over rising global commodity prices, especially crude, and felt that elevated level of global commodity prices was a major risk to both global growth and global inflation.

Dwelling on the domestic macroeconomic developments, the Committee noted with satisfaction the real GDP growth of 8.6 per cent estimated by the Central Statistical Organisation (CSO) for 2010-11. However, it also felt that there were some signs of investment demand slowing down and that the growth in 2011-12 could be lower than that estimated for 2010-11. According to the Committee, inflation continued to be a major challenge for the Reserve Bank. A sharp rise in inflation, especially non-food manufacturing, in March 2011 was a cause of serious concern. Inflationary expectations were at an elevated level and it needed to be ensured that they did not get entrenched. According to the Committee, inflation would continue to be at an elevated level in the first half of 2011-12, before moderating. Going forward, inflation was a major risk to growth. It was, therefore, necessary to contain inflation and anchor inflation expectations so that long-term growth prospects of the economy were not harmed. All members of the Committee, therefore, suggested that the Reserve Bank should continue with the anti-inflationary stance of monetary policy, although views differed over the extent of monetary tightening the Reserve Bank needed to undertake in its May 3, 2011 Policy.

Some members felt that the fiscal deficit budgeted in the Union Budget 2011-12 was likely to exceed and that demand management efforts of the Reserve Bank would needed to be supplemented by the Government.

While four members of the Committee were of the view that the repo and reverse repo rates be raised by 25 basis points each, two members suggested 50 basis points increase each in the repo rate and the reverse repo rate. In addition to increase in the policy rates by 25 basis points each, one member was of the view that the statutory liquidity ratio (SLR) could be increased by 100 basis points and the repo facility of the Reserve Bank be limited up to 2 per cent of excess SLR securities held by banks. A member also felt that the Reserve Bank could consider certain controls, if capital inflows became excessive.

Dr. D. Subbarao, Governor and Chairman of the TAC chaired the meeting. Other members present were: Dr. Subir Gokarn, Vice-Chairman, Smt. Shyamala Gopinath, Dr. K.C. Chakrabarty, Shri Anand Sinha, Shri Y.H. Malegam, Shri Sanjay Labroo, Prof. Dilip M. Nachane, Dr. A. Vasudevan and Prof. Sudipto Mundle. Prof. Samir K. Barua could not attend the meeting but submitted his written views. Dr. Shankar Acharya could not attend the meeting. Shri Deepak Mohanty, Dr. Janak Raj, Shri B.M. Misra, Shri Pardeep Maria and Shri Amitava Sardar were in attendance.

It may be recalled that the Reserve Bank had decided to place the main points of discussion of the Technical Advisory Committee (TAC) on Monetary Policy meeting in public domain with a lag of roughly four weeks after its meeting. This was started with placing the minutes of the twenty-third Technical Advisory Committee (TAC) meeting held on January 19, 2011 which were placed in public domain on February 22, 2011.

Alpana Killawala, Chief General Manager

Press Release : 2010-2011/1739

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