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Following opinion
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Mumbai, Feb. 23 (PTI): The Reserve Bank’s decision to cut interest rates in the third-quarter monetary policy review was in tune with the unanimous opinion of external experts in this regard.
On monetary policy measures, all external members were unanimous in recommending a reduction in the policy repo rate, according to the minutes of the technical advisory committee held on January 23, six days before the policy review.
In its third-quarter monetary policy review on January 29, the RBI had reduced the repo rate by 0.25 per cent after maintaining a status quo on it since April 2012.
Four of the six members, the minutes said, had suggested that the reduction should be by 25 basis points as they felt favourable global conditions and a marginal decline in WPI inflation provided room for some monetary easing.
The other two members had pitched for a sharper cut of 0.50 per cent in the repo rate (short-term lending rate) as they felt it would increase working capital loans, thereby increasing capacity utilisation.
The members felt that the huge level of current account deficit (CAD), which reached a historic high in second quarter of 2012-13, was the “most important macroeconomic concern”.
Financing such high levels of CAD is worrisome, as it is accentuating external sector vulnerability, they said.
On gold imports, they felt “once inflation subsides and growth improves, people will have less incentive for flight to safe haven assets”.
Further, the members opined that “the underlying macroeconomic conditions are still sluggish. Investment has not revived yet and contraction is still underway in the capital goods industries”.
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