Moneycontrol
Dec 05, 2017 10:35 AM IST | Source: NEWS18.com

PM Modi's advisor says RBI over-estimates inflation, economists feel otherwise

“Their view of the economy doesn’t seem to be correct... (By keeping rates high) they have imposed a high output sacrifice,” Ashima Goyal, a member of Prime Minister’s Economic Advisory Council told Bloomberg.


Ahead of the Reserve Bank of India’s (RBI) monetary policy committee (MPC) meeting on December 6, members of Prime Minister’s Economic Council told Bloomberg that the central bank overestimates inflation and should order a cut in interest rates. Experts, however, do not agree.

“Their view of the economy doesn’t seem to be correct... (By keeping rates high) they have imposed a high output sacrifice,” Ashima Goyal, a member of Prime Minister’s Economic Advisory Council told Bloomberg.

"They believe inflation will rise but you know they always overestimate. The RBI has room to reduce rates by 100 basis points,” she said.

However, former adviser to the Planning Commission and the first Chief Statistician of India, Pronab Sen is not in agreement with the statement.

“Interest rates are a tool to correct inflation, it doesn’t cause inflation. However, if there is an inflationary trend, interest rates cut down on demand. If there is insufficient demand in the economy, then the Central Bank will revive demand by cutting interest rate,” said Sen.

The 80-year-old further said that the central bank while setting the rate, doesn’t look at just next month’s inflation, rather a four to nine-month period. The RBI, therefore, makes a projection that is going to be nine to twelve months ahead and sets interest rates accordingly.

Read More
 
Sections
Follow us on
Available On