Arvind Subramanian: Economic situation warrants easing of rates

Chief Economic Advisor Arvind Subramanian said on Wednesday that seldom have economic conditions warranted a substantial monetary policy easing as they do now. Subramanian’s views came as the Reserve Bank left lending rates unchanged citing risks to inflation. He said “we respect” the views and decisions of RBI in the broader good, but “I wanted to give you my own technical assessment of the inflation and growth outlook”.

Talking to reporters after RBI released its statement, Subramanian said there is a plausible alternative macro-economic assessment. “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.

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Further, he said, the outlook also points to a slowdown, and not to rapid acceleration.At the same time, the real policy interest rate is tight and rising.

“To conclude, seldom have economic conditions and the outlook warranted substantial monetary policy easing,” said Subramanian.

Headed by RBI Governor Urjit Patel, the Monetary Policy Committee (MPC) for the fourth straight time kept the repo rate unchanged, at which it lends to the banks, at 6.25 per cent.

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The reverse repo, at which RBI borrows, will be 6 percent. After a sharp decline in April, RBI has lowered inflation projection.