Complimenting RBI Governor Urjit Patel on the monetary policy committee (MPC) maintaining the apex bank's key lending rate in the nation's broader good, Chief Economic Advisor (CEA) Arvind Subramanian on Wednesday, however, said that seldom before have economic conditions warranted a substantial monetary policy easing as they do at this juncture.At its second bi-monthly monetary policy review of the fiscal held in Mumbai on Wednesday, the Reserve Bank of India (RBI) maintained status quo on its repo, or short-term rate for lending to commercial banks, at 6.25 per cent for the fourth successive policy review, dashing the government's hopes of a reduction. In doing so, the policy statement said the MPC was guided by the risks to inflation. "We respect the decision taken by the RBI, which is in the broader good of the country," Subramanian told reporters after the central bank's announcement adding, however, that "I wanted to give you my own technical assessment of the inflation and growth outlook".He said he was offering a plausible alternative macroeconomic assessment to the one given by the RBI on Wednesday.
"In this view, not just headline inflation has been running well below the target so far, but even core inflation ... has also declined sharply. In this view, inflation forecast errors by the RBI have been large and systematically one-sided in overstating inflation," he said.The inflation outlook has been benign while growth in the economy has decelerated along with slowdown in private investment, credit growth and gross capital formation, the CEA said. "Real interest rate is tight and rising at a time of such an outlook on inflation and growth deceleration. The appreciating real interest rate has further tightened monetary policy," he said."To conclude, seldom have economic conditions and the outlook warranted substantial monetary policy easing," he added.Meanwhile, at the press conference in Mumbai to announce the policy review, the RBI Governor disclosed that the Monetary Policy Committee had turned down the Finance Ministry's invite for a discussion here ahead of its meeting.
"Regarding the Finance Ministry's invitation for a meeting with the MPC... all the MPC members declined the request of the Finance Ministry," Patel said.He was asked if the ministry invite was an assault on the independence and autonomy of the RBI. The committee did not accept the invite, he added.Since the six-member MPC started setting rates in October last year, this was the first time it did not take a unanimous decision, with five members voting in favour of holding the rate and one opposing.Three of the six members of the MPC are government nominees, while the others are from the RBI. Wednesday's RBI decision to stay the lending rate comes after latest official data showed a significant fall in both retail inflation as well as the country's economic growth rate in the fourth quarter of the last fiscal, impacted by demonetisation, which had raised hopes for a rate cut.