RBI Members argued, "The methodological note on compilation of national accounts was silent on the method of connecting the current series with past data. In the absence of rebased past data they felt constrained in estimating potential level of growth, assessing the state of the business cycle, or making projections."
The 38th meeting of the Technical Advisory Committee (TAC) that was held on April 1 to discuss Reserve Bank of India's (RBI) first bi-monthly monetary policy for 2015-16 debated on the new GDP series at great length and termed it 'puzzling'.
RBI, in a press release, said that most members concurred that it was a challenge to understand the growth momentum under the revised series as all other indicators being tracked by analysts do not show that promising level of activity. It said, "Members said that, given the puzzles posed by the new GDP, one might have to shoot in the dark while recommending anything for monetary policy."
RBI maintained status-quo in that policy announcement and chided banks for not cutting lending rates.
A couple of banks followed with rate cuts soon after including State Bank of India, ICICI Bank and HDFC Bank.
However, 70 banks are yet to pass on the benefit of lowering lending rates to their customers, as the government told Parliament earlier this week.
RBI Members argued, "The methodological note on compilation of national accounts was silent on the method of connecting the current series with past data. In the absence of rebased past data they felt constrained in estimating potential level of growth, assessing the state of the business cycle, or making projections."
Based on their discussions, four members recommended a cut in repo rate. Two of those said that the RBI should cut repo rate by 50 basis points with a forward guidance of no further rate cuts. RBI said, "According to these two Members, the current monetary policy stance was tight, causing deceleration in real private consumption demand."
The other two members batted for a 25 basis points cut as food and fuel inflation declined. RBI said, "They were of the opinion that front-loading of policy rate cuts would remove some of the expected asset appreciation that is driving in large debt flows."
RBI has already cut repo rate twice, by 25 basis points each since January this year. The current repo rate in India stands at 7.5%.
Three members of the RBI argued that the Bank should not cut repo rate in the April 7 announcement.
They were of the view that until the two 25 basis points cuts in the repo rate, in January and March 2015 are transmitted into lending rates, no further cut is desirable. "They emphasised that simultaneous monetary and fiscal easing was a major risk and found the desire of some Members to frontload cuts rather puzzling," RBI said.
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