RBI monetary policy panel refused meeting with Finance Ministry
- Author: Zachary Reyes Jun 10, 2017,
Jun 10, 2017, 16:14
As per reports, the government had asked for a meeting to be organised with MPC members before the policy meet, which was widely criticised as its attempts to interfere and influence RBI's decisions to change the interest rate or keep them as is.
Soon after the decision by the monetary policy committee, the Indian government's Chief Economic Adviser Arvind Subramanian expressed his disappointment over the decision to hold rates unchanged at 6.25%.
However, the central bank said the implementation of the Goods and Services Tax (GST) is not expected to have a material impact on overall. Consequently, the reverse repo rate, under the liquidity adjustment facility (LAF), remains at 6 per cent, and the marginal standing facility (MSF) rate and the bank rate at 6.50 per cent.
"Despite a sharp reduction in its inflation forecast, the MPC's policy stance has been kept "neutral" citing inflation risks on which they seek more clarity".
Significantly, however, the RBI cut its projection for consumer inflation to 2-3.5 percent in April to September, down from 4.5 percent earlier, and to 3.5-4.5 percent in October to March, down from 5 percent earlier. The status quo comes even as its Monetary Policy Committee, during its two-day diagnosis of the economy, rightly took note of the essentials: The need to revive private investment, to restore the banking sector's health, and to remove infrastructural bottlenecks. Asserting that independence in the eternal inflation versus growth debate led to extreme tensions in the past three years in India, featuring two central bank governors of totally different temperaments, who seem bound by the same conservatism in tackling repo rates.
As per the Pranjul Bhandari, chief India economist at HSBC, it can be the time the RBI modified its inflation forecasts to strengthen its credibility.
A repo rate cut, if passed on to end customers, could translate into a lower cost of borrowing, boosting liquidity further.
The bank has revised down its GVA growth projection for 2017-18 by 10 basis points to 7.3 percent. However, it said: "We now expect the RBI to leave rates unchanged through March 2018, which would then be followed by a cumulative 50 bps of rate hikes starting April 2018".
Former RBI Governor Raghuram Rajan, and his predecessors, had also clashed with the government over interest rate decisions. The central bank has cut by 0.5 per cent to 20 per cent, a move aimed at raising buoyancy in the loans market as banks would have slightly higher funds for lending.
Since the six-member MPC started setting rates in October previous year, this was the first time it did not take a unanimous decision.
"The easing of inflation excluding food and fuel may be transient in view of its underlying stickiness in a situation of rising rural wage growth and strong consumption demand", the bank said in a statement released on its website.