New Delhi/ Mumbai: The gloves are off! In what can only be seen as the start of a confrontation between RBI and North Block, the RBI led Monetary Policy Committee (MPC) which sets up interest rates in the country declined an invitation from the finance ministry for a meeting just before the monetary policy review on Wednesday, amid reports that the finance ministry is unhappy with RBI governor Urjit Patel for not cutting interest rates more aggressively as government wanted it to.
Clearly indicating that the finance ministry summons to MPC members was being seen as an interference in the independence of RBI's monetary policy committee, the RBI Governor on Wednesday said: "The meeting did not take place. All MPC members declined."
Since last year, MPC which is a six member panel, headed by the RBI governor and members nominated by the Centre (three members) and Central Bank takes decision on the interest rates in the country. Earlier, interest rates were the sole preserve of the RBI governor.
Key interest rate
The Central Bank — MPC meanwhile left key interest rate unchanged on Wednesday, citing risks to inflation due to spurt in farm loan waivers by states leaving the finance ministry and North Block fuming as it felt that inflation was consistently low warranting a rate cut.
Chief economic adviser Arvind Subramanian said : "In recent times, seldom have economic conditions and the outlook warranted substantial monetary policy easing (means cut in interest rates)." Mr Subramanian said inflation has been running well below the target and real economy growth had decelerated from last July. "Inflation forecast errors have been large and systematically one-sided in overstating inflation," he said.
Clearly North Block and Mint Street are not on the same page on inflation or on interest rates.