New Delhi/Mumbai: The RBI’s monetary policy committee (MPC) had asserted its autonomy and unanimously turned down the Union finance ministry’s invite for a discussion ahead of the panel’s policy review meeting, “The meeting did not take place. All the MPC members declined the request of the finance ministry for that meeting,” Mr Urjit Patel said.
The RBI governor was responding to a question, whether the ministry move to call for a meeting curbs the central bank’s independence and damages the MPC’s credibility.
Interestingly, the MPC on Wednesday again did not cut interest rates citing risks to inflation due to a spurt in farmloan waivers by certain states.
India’s CEA Arvind Subramanian reacted by saying that a substantial monetary policy easing was warranted in the current situation. “In recent times, seldom have economic conditions and the outlook warranted substantial monetary policy easing (rate cuts),” he said.
Mr Subramanian said inflation has been running well below the target and the real economy growth has decelerated from last July. “Inflation forecast errors have been large and systematically one-sided in overstating inflation,” he said.
On the government calling MPC members for a meeting, Mr Subramanian said,
“The more discussion we all have, the more the government can provide inputs. It will only enrich the debate.” Earlier, interest rates were solely decided by the RBI governor through internal discussions.
Many analysts had seen the summons to MPC members as an interference in the independence of the committee. Typically, governments around the world want interest rates to be low as it spurs growth. However, there are
systematic risks for keeping interest rates low for long periods like high inflation and formation of assets bubbles like in 2008.
According to reports, the ministry had called for separate meetings with MPC members nominated by the government and the RBI representatives....