RBI asserting its independence?MPC declined FinMin’s invite: Urjit Patel
The three external members of the Monetary Policy Committee (MPC) had declined a request for a meeting with finance ministry ahead of the policy meet, revealed RBI governor Urjit Patel on Wednesday.business Updated: Jun 08, 2017 11:09 IST
In a move that can be interpreted as asserting its autonomy, the three external members of the Monetary Policy Committee (MPC) had declined a request for a meeting with finance ministry ahead of the policy meet, revealed RBI governor Urjit Patel on Wednesday.
The meeting was scheduled last week ahead of the credit policy meeting that began on Tuesday. It was to be attended by chief economic adviser Arvind Subramanian, principal economic adviser Sanjeev Sanyal, and economic affairs secretary Shaktikanta Das.
Such requests for meetings have always led to speculation about the government’s attempt at influencing the central bank into cutting interest rates.
The RBI Act gives the government the power to issue directions to the central bank in public interest, after consultation with the governor.
Arvind Virmani, who was part of the erstwhile Technical Advisory Committee to the RBI on monetary policy, said the RBI and the government should jointly make a rule that the government will not meet MPC members 2-3 weeks preceding the meeting and a day after the monetary policy announcement. “They can meet to exchange information, knowledge and views as frequently as they wish, during the rest of the period. This will help avoid speculation and help the credibility of both the government and the MPC,” he said in an email to Mint.
The six-member headed by the RBI governor, was formed last September. The three government-appointed members are Chetan Ghate, a professor at the Indian Statistical Institute; Pami Dua, director of Delhi School of Economics; and Ravindra Dholakia, professor at the Indian Institute of Management-Ahmedabad.
Under the MPC framework, the RBI is committed to keeping inflation down at 4%, with a band of 2% on either side. If the central bank fails to meet the target, it will have to explain the reasons for its failure to do so, as well as give a time frame within which it will achieve it.
On Wednesday, in response to the RBI’s announcement, Subramanian said that inflation forecast errors have been large and systemically one-sided in overstating inflation. He added that real policy rates are tight and rising amid low inflation and slowing growth.
The RBI kept the repo rate unchanged, but softened its hawkish stance owing to the fall in retail inflation to a record low and lower-than-expected economic growth.
(With inputs from Mint)