by Sunil Chandra
Econintersect: It appeared at the time that the drastic increase of 50 bps in repo rates by the RBI (Reserve Bank of India) on 26 July 2011 was a desperate gamble by a Governor serving out his last few weeks. Then two weeks later, as reported in GEI News, Reserve Bank Governor Duzzuri Subbarao was appointed to a extension of two more years in that post. How desperate Subbarao may have felt is indicated in the just released (August 18) Minutes of the Technical Advisory Committee on Monetary Policy. It appears that the Governor was the only committee member who favored the action taken. He seems to have acted unilaterally.From my Op Ed at GEI Opinion:
Finally, he could not resist the temptation and decided to go out with a bang. Reserve Bank of India Governor D. Subbarao (pictured), whose current tenure comes to an end on 05 September 2011, must have been a worried man in the run-up to the monetary policy review on 26 July 2011. Despite ten successive hikes in key policy rates, spread over 18 months, the Wholesale Price Index (WPI) continued to hover above 9% p.a. His best monetary efforts to control prices had come to a naught. Therefore, he did a repeat of the May policy action of a double whammy and increased repo rates by a stupendous half percent.
Sources: RBI Press Release 18 August 2011, GEI News and GEI Opinion
About the Author
Sunil Chandra is CEO of an investment banking start-up, located in New Delhi. He was formerly associated with Punjab National Bank, one of India’s largest, and, later, as Country Head for some leading bond houses in India. He has earlier written for Hindustan Times and other publications.
