RBI - Meeting Minutes of Technical Advisory Committee

The Committee reviewed the global and domestic macroeconomic developments. It felt that the global macroeconomic situation had worsened with the uncertainty clouding the increase in the US debt ceiling issue and continuing problem in the euro area.  If the US debt crisis was not resolved satisfactorily, it would have serious ramifications for the global economy. They were also concerned that if the euro area sovereign debt problem spilled over to Spain and Italy, the consequences could be serious. While the international commodity prices had softened, the outlook was still uncertain. Members also expressed concerns over rising incipient inflationary pressures in advanced economies, even as the emerging market economies (EMEs) were still battling with high inflation.

3. On the domestic macroeconomic developments, most members observed that investment activity was slowing down due to a variety of factors. However, the overall growth was still strong in comparison with most other EMEs. According to the Committee, inflation continued to be a major concern.  The inflation rate continued to be stubbornly high.  Inflation expectations were high and wages were rising.  This could worsen the vicious wage-prices spiral, which to some extent was already evident. According to some members, inflation was driven largely by cost push factors, which was not amenable to monetary policy action. Most members felt that inflation was expected to moderate, although the risk on the monsoon front remained. In view of global uncertainty and deceleration of domestic economic activity, most members suggested that equal weight be given to the objectives of fostering growth and controlling inflation while formulating monetary policy.

4. Most members felt that there could be a slippage in the fiscal deficit budgeted in the Union Budget  2011-12.  They were concerned that the fiscal situation had placed the entire burden of inflation management on monetary policy.  Uncertainty about the fiscal situation would continue to pose a serious challenge for monetary policy. Some members also observed there had been no major economic reforms in the recent period.

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