New Delhi: In a major criticism of the past monetary policies, the ‘Mid-Year Economic Analysis’ said on Friday that for a long time Indian economy had been drifting without a credible monetary anchor. “Since late 2013, however, this has been laudably reversed,” the review tabled in the Parliament on Friday, observed. It said that for nearly “six years (2007 third quarter to 2013 third quarter), India lost monetary policy credibility, reflected in the fact that the real policy interest rates were consistently negative at a time when inflation was persistently in the double-digit territory.”
Y.V. Reddy was governor of the RBI from September 2003 to September 2008 and was succeeded by D. Subbarao, who remained the central bank chief till September 2013.It said that for the first time in decades, inflation in India exceeded that in comparator countries. “That has been reversed since the end of 2013, with real the interest rates climbing back into positive territory, and as of today stands just above 2 per cent (on a 3-month forward-looking basis). Monetary policy credibility has been gained through important actions both by the RBI and by the government,” said the report.
The review said that for its part, the RBI raised policy rates since July last year and published the Urjit Patel Committee Report, both of which signalled the move towards a flexible inflation targeting regime. “In doing so the RBI has clearly demonstrated the capacity to rein in inflation,” the review said.
