No bias in RBI-led MPC to raise interest rates: Economic Affairs Secretary

The government sees no bias in RBI-led monetary policy committee towards raising interest rates, and the decisions should be guided by hard data, Economic Affairs Secretary Subhash Chandra Garg has said.

The minutes of the last MPC meeting in April "do no reflect any bias for increase" in interest rates, he told PTI.

When the policy that kept interest rates unchanged was announced, the media said it is a dovish policy, he noted. "What has come now is details of what members said, and 1 or 2 members seem to be saying if situation would turn it in this way (raising interest rates), but then a lot of others did not say the same."

At the April 4-5 policy meeting, Deputy Governor Viral Acharya cited revival in investment activity and an improvement in capacity utilisation for his switch from a neutral stance to shift "decisively to vote for a beginning of 'withdrawal of accommodation' in the next monetary policy meeting in June."

A majority of the six-member panel flagged upside risks to inflation as it kept the benchmark repurchase rate unchanged at 6 per cent. Five of the six members voted for status quo on interest rates, while one, Michael Patra, who is an executive director heading the research department, sought an increase.

"We should go by the real numbers. Have you seen disproportionate rise in inflation numbers? Have you seen extra ordinary growth in output which has reduced the output gap substantially? No," Garg said.

Only fundamentals should dictate such decisions, he said. "If there is any real situation where inflation seems to overshoot, RBI does have a statutory mandate to keep the inflation around 4 per cent. So, they would take the most appropriate steps for that."
 

He went on to say if such a situation was there and answered it by saying no.

"When you people say that something is going to happen, it should be based on fundamental," he said.

The retail inflation in March slipped to a 5 month low of 4.27 per cent on account of decline in food prices.

The RBI has revised downwards forecast for retail inflation to 4.7-5.1 per cent for April-September and 4.4 per cent for October-March.